PAYE28010 - employer records: modified PAYE schemes: employees seconded abroad

This subject consists of the following

Background

Arrangement made before 5 April 2006

Arrangement from April 2006

Employer-related electronic file

Annual review of the employer-related electronic file

Interest and penalties

Background

This subject describes an arrangement, in operation since April 2002, that allows an employer with employees seconded abroad, under certain conditions, to apply to defer the reporting and payment of secondary National Insurance Contributions (NIC). This is achieved by the setting-up of a separate employer record that relates solely to the seconded employees. The payment of tax is not affected in any way.

There are many types of secondment package. These can include payments and allowances from both the UK and overseas.

Due to differences in tax years between the UK and some overseas tax authorities, it is not always possible for employers to meet the filing and payment deadlines for their annual return.

Arrangement made before5 April 2006

From April 2002 to 5 April 2006, an employer with employees seconded abroad, subject to certain criteria and agreement to the application, was able to defer the reporting and payment of secondary NIC due on payments made by the overseas companies, to 31 January following the end of the relevant tax year.

Applications using form P350 and subsequent arrangement allowed the UK employer, without facing interest and penalties for late payment and filing, to

• Pay NICs in the normal way under the existing employer reference, on

And

• Settle the remaining NICs due, under a separate employer reference set up for this purpose, before 31 January in the year following the end of the tax year

The scheme must not be used to correct errors or omissions on the main return. The procedures for dealing with such errors or omissions are included at PAYE46036.

Arrangement from April 2006

From 6 April 2006 new arrangement for deferring and accounting for NICs where the employees work abroad replaced the arrangement introduced in April 2002.

This new arrangement applies to employees who

• Are seconded abroad
• Are non-resident and not liable for UK tax
• Pay UK earnings in excess of the annual Upper Earning Limit, and
• Receive part of their earnings from a payroll abroad

This new arrangement allows the employer to

• Account for NIC, in the normal way, using a best estimate of all earnings that attract Class 1 NICs
• Enter the figures for NICs on the Employer Annual Return, for submission by 19 May following the end of the tax year
• Submit the correct figures for NICs and pay any additional NICs not reported on the Employer Annual Return, using a ‘NIC Settlement Return’ by 31 March following the end of the tax year. The employer can apply for a refund where the NICs paid on the best estimate are too high

A separate PAYE scheme will be created to process the ‘NIC Settlement Return’. Providing the terms of the agreement are met, the additional NICs reported on the ‘NIC Settlement Return’ attract no interest or penalties.

Applications to operate Modified NICs under EP Appendix 7B must be made in advance. This can be any time prior to the first tax month that the modified arrangement is to operated.

Where the employer has a separate ‘dedicated’ PAYE scheme for expatriate employees, the Expatriate Team will be responsible for approving an application to operate Modified NICs in accordance with EP Appendix 7B and arranging the

• Creation and maintenance of a separate PAYE scheme

And

• Processing of the ‘NIC Settlement Return’

All other EP Appendix 7B applications must be reviewed at the office responsible for the main employer PAYE scheme, by an officer at Officer Grade or above

If you are unsure which Expatriate Team is associated with your office

• Go to the Complex Personal Tax Teams (CPTT) Website
• In the left bar select Expatriate homepage
• In Quick Links on the right - select ‘Identifying our customers’. The page displayed will be headed Expat Case Selection Criteria
• At the bottom of the page select your office in the drop down. This will display the contact details for the appropriate Expat team

Employer-related electronic file

Any applications for the deferment of payment of secondary NICs that are accepted must be entered in the employer-related electronic file 'Employer with employees seconded abroad - earnings paid by overseas companies'

You must include

• Employer name
• Employer PAYE references
• First year of deferment

Annual review of the employer-related electronic file

The employer-related electronic file must be reviewed in April each year to

• Ensure returns and payments have been received and recorded as received before 31 January each year
• Review each deferment for the year CY-1

Interest and penalties

If a return within this modified PAYE scheme is not received by the filing deadline of 31 January, penalties are due from the original filing date of 19 May. The deferred filing date is a concession and can only be maintained when the return is received by that date.

Interest on any payment outstanding at 31 January will be charged from 1 February.