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
NICs Settlement Return (NSR)
Employer-related electronic file
Annual review of the employer-related electronic file
Interest and penalties
Background
Since April 2002, an employer with employees seconded abroad can, under certain conditions, apply to defer the reporting and payment of secondary National Insurance Contributions (NICs). This is achieved by setting-up 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 and they 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 before 5 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 NICs 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 interest and penalties for late payment and filing, to
- Pay NICs in the normal way under their existing employer reference on
- Earnings paid in the UK
- Known regular earnings paid overseas
And
- Estimates of overseas earnings
- 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
This separate 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 an employer can calculate and pay NICs on a modified basis under an EP Appendix 7B agreement (PAYE82004).
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 operate.
This arrangement applies to employees who
- Are seconded abroad
- Are non-resident and not liable for UK tax
- Are paid UK earnings in excess of the annual Upper Earning Limit
And
- Receive part of their earnings and benefits from sources abroad
This new arrangement allows the employer to
- Account for NICs in the normal way, using a best estimate of all earnings that attract Class 1 NICs
- Report these figures for NICs in the normal way under PAYE, for submission by 19 May following the end of the tax year
- Submit the actual figures for NICs and pay any additional NICs not reported on the original submission, using a ‘NIC Settlement Return’ by 31 March following the end of the tax year. The employer can apply for a refund if the NICs paid on the best estimate are too high
Note: Due to the recent COVID-19 outbreak and accompanying advice from the Prime Minister and HM Government, we recognise most customers and agents may either be in self-isolation or will be working from home, with limited access to usual resources. To help with this, the 31 March 2020 deadline has been extended to the 31 May 2020.
NICs Settlement Return (NSR)
For years up to 5 April 2013 a separate PAYE scheme was created to process the NIC Settlement Return (NSR) (PDF 29KB). Following the introduction of Real Time Information (RTI) the NSR is processed under the employers main PAYE scheme. Providing the terms of the agreement are met, the additional NICs reported on the NSR attract no interest or penalties.
Where the employer has a separate ‘dedicated’ PAYE scheme for both inbound and outbound expatriate employees, Personal Tax International in Manchester are responsible for approving an application to operate Modified NICs in accordance with EP Appendix 7B and arranging the processing of the NSR.
All other EP Appendix 7B applications must be reviewed by the Complex Caseworker, Employer Technical Team. Note: In most cases the NSR will show an additional amount of NICs to pay. If so,
- For years up to 5 April 2013 the additional amount is processed under the EP Appendix 7B employer reference
- For years from 6 April 2013 a Class 6 Settlement is raised under the employer’s main PAYE reference
However, where the NICs originally paid using the best estimate are overpaid, a refund will be due and
- A refund due to the employer will be processed under the employer’s main PAYE reference
- For a refund due to the employee, a copy of the NSR will be sent to NICO who will make the refund
Employer-related electronic file
Any application that is accepted under this modified NICs arrangement 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 EP Appendix 7B agreement
Annual review of the employer-related electronic file
The employer-related electronic file must be reviewed in April each year to
- Ensure NSRs and payments have been received and recorded as received before 31 March each year
- Review each entry for the year CY-1
Note: Due to the recent COVID-19 outbreak and accompanying advice from the Prime Minister and HM Government, we recognise most customers and agents may either be in self-isolation or will be working from home, with limited access to usual resources. To help with this, the 31 March 2020 deadline has been extended to the 31 May 2020.
Interest and penalties
If an NSR is not received by the filing deadline of 31 March, penalties are due from the original filing date of 19 May. The deferred filing date is a concession and can only apply if the NSR is received by that date.
Interest on any payment outstanding at 31 March will be charged from the previous 19 April.