PAYE28015 - employer records: modified PAYE schemes: expatriate employees (tax equalisation)

An expatriate employee, subject to tax equalisation, is a foreign national who is sent to work in the UK by his employer. (This would typically be a multinational company).

Modified PAYE, Employment Procedures Appendix 6

Where an expatriate employee is fully tax equalised, the employer can apply to operate a Modified PAYE arrangement. This arrangement was updated in April 2006. Detailed information on this subject can be found in the Employment Procedures (EP) Manual at EP8250 - 8254.

In October 2003 Expat Teams were established in 5 locations to deal with expatriate employees.

Employers with expatriate employees may have or request to have a PAYE scheme for them that is separate from the PAYE scheme for the rest of their employees. This is known as a ‘Dedicated scheme’. In these circumstances, the Expatriate Team will be responsible for the whole ‘Dedicated scheme’, employer and employees.

Some employers, however, who employ expatriate employees do not have a ‘Dedicated scheme’ for their expatriate employees. They have what is known as a ‘Mixed scheme’, that is, the scheme is used for both ordinary and expatriate employees. In these circumstances, the Expat team is responsible for the employees but not the employer.

The update arrangements to operate Modified PAYE under Employment Procedures Appendix 6 require the employer to

• Account for PAYE, in the normal way, using the best estimate of all earnings and benefits grossed up for tax purposes
• Enter the estimated pay figure and tax deducted on the Form P35, for submission by 19 May following the end of the tax year
• Submit forms P11D and P11D(b) by 31 January following the end of the tax year

Provided the conditions of the arrangement are met and the forms P11D and P11D(b) are submitted by 31 January no interest or penalties will be charged.

All applications must be dealt with by the Expatriate Team. Therefore any applications received must be forward to your associated Expatriate Team.

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

• Go to the Complex Personal Tax Teams (CPTT) Website, then
• In the left bar - select Expatriate homepage - then
• 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

Employers who already operate Modified PAYE for tax equalised employees under an existing EP Appendix 6 arrangement can if they prefer continue to use this arrangement for 2006/07. However they must re-apply under the updated arrangements for 2007/08 onwards, before 6 April 2007. Any modified arrangement governed by an earlier version of EP Appendix 6 will be regarded as terminated at 5 April 2007.

Modified NIC’s, Employment Procedures Appendix 7A

From April 2006 a new procedures for operating Modified NIC’s was introduced for 2006/07 for employers who employ expatriate employees that are fully tax equalised, earn above the Upper Earning Limit and may receive earnings or benefits paid outside the UK.

To apply to calculate and pay NICs on a modified basis, the employer must have a new updated EP Appendix 6 - Modified PAYE arrangement in place.

This arrangement requires the employer to

• Account for NICs in the normal way, using a best estimate of all earnings and benefits that attract Class 1A NICs
• Enter the figures for NICs on the form P35, 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 form P35, using a ‘NIC Settlement Return’ by 31 March following the end of the tax year

Note: The employer can apply for a refund where the NICs paid on the best estimate is too high.

Detailed information on this subject can be found in the Employment Procedures (EP) Manual at EP8250-8254.

All applications to operate Modified NICs for expatriate employees must be dealt with by the Expatriate Team. Therefore any applications received must be forward to your associated Expatriate Team who will be responsible for arranging the

• Creation and maintenance of a separate PAYE scheme

And

• Processing the ’NIC Settlement Return’