PAYE81561 - PAYE operation: international employments: PAYE directions for individuals who are treaty non resident in the UK

If an individual is treaty non resident in the UK and performs only a part of the duties of their employment here, they may make a claim to relief under the terms of the Employment Article in the relevant Double Taxation Arrangement. The claim will be made via the Self Assessment tax return, supported by the required information (Help sheet / certificate of residence from the other country).

An application may be made to limit the operation of PAYE in the same manner as under Section 690 ITEPA 2003 for employees who are not UK resident or if resident are entitled to overseas workday relief. Section 690 does not cover individuals who are treaty not resident in the UK, but HMRC will issue directions in these circumstances.

Process

1. Is it clear that the application has been made by the employer or employer’s representative?

Yes - Go to step 2

No - Tell the applicant that you cannot accept the application using the letter

Thank you for your letter of [enter date].

An application must be made by an employer or a person designated by an employer to make the application on their behalf. As it is unclear whether you act for the employer I am sorry that I am unable to accept the application from you at this time.

2. Does the application include all the following?

  • the employee’s National Insurance number
  • the tax year (s) to which it relates - (Note: It cannot be made for previous years)
  • a stated proportion of work done in the UK
  • a brief explanation of why the employee is believed to be treaty not resident in the UK (Helpsheet 302 provides information of the factors to be taken into account)


Yes - Go to step 4

No - Ask the employer for the missing information using the letter

Thank you for your letter of [enter date].

I need more information to consider your claim to limit the operation of PAYE for [enter employee’s name]. Please let me have the following information.

List the missing information, for example

  • employee’s name
  • National Insurance number (if known)
  • tax year (s)
  • proportion of work done in the UK
  • a brief explanation of why the employee is believed to be treaty not resident in the UK (Helpsheet 302 provides information of the factors to be taken into account)


4. Are the individual’s SA tax affairs up to date?

Yes - Accept the application by taking the following action

  • tell the employer that you have accepted the application using the direction letter ‘Treaty relief employer’ (see below)
  • tell the employee that you have accepted the application using the letter at ‘Treaty relief response to employee’ (see below)
  • tell the agent that you have accepted the application if appropriate using the letter at ‘Treaty relief response to application by agent’ (see below)


No - Take the following action

Tell the employee that you cannot approve the application using the letter.

Your employer [insert employer’s name] has made an application to operate PAYE on only a percentage of the payments that he makes to you. The percentage that is taxed is only an estimate of your tax position and the final liability cannot be known until after the end of the tax year when you make your self assessment return.

Although we have sent you reminders we are still awaiting your tax returns for [enter year]. You should have sent this return back by 31 January [enter year].

As your tax affairs are not up to date, I am unable to give your employer approval at this time. Please let me know when you have filed your outstanding return(s) and I will look at the application again.

Issue the letter to the employer

Thank you for your letter of [enter date].

I am sorry but I cannot accept your application to limit the operation of PAYE at this time. For reasons of customer confidentiality I am unable to tell you why I have refused your application but you should advise (enter employee name) to contact their HM Revenue & Customs office if they wish to discuss this further.

Treaty relief employer

SEES letter EXP23 – Treaty Relief Employer (Letter H)

Thank you for your letter dated [enter date] or I acknowledge receipt of the application submitted on your behalf by your agent [insert name].

I accept your application to limit the operation of PAYE for [enter year] to [insert percentage] of the total payments to the above named employee. This direction applies to Income Tax only. You should continue to pay National Insurance contributions on 100 per cent of the employee’s earnings, where appropriate.

You should start applying this limit from [enter date].

Guidance on how to complete Full Payment Submissions is available at https://www.gov.uk/running-payroll/reporting-to-hmrc

If you have to apply this limit to previous earnings in the current year, you will need to make corrections to the year to date entries on your next Full Payment Submission. Further information is available at http://www.hmrc.gov.uk/payerti/reporting/errors.htm.

Please notify this office immediately if you become aware of any change to the employee’s circumstances that could affect this limited operation of PAYE.

Treaty relief response to application by agent

SEES letter EXP24 Treaty Relief Employer (Letter I)

Thank you for your letter dated [insert date].

I acknowledge receipt of your application on behalf of [enter employer’s name] to limit the operation on payments to [insert employee’s name].

As you are aware, in strictness Section 690 Income Tax (Earnings & Pensions) Act 2003 only applies where an individual is either not resident or resident and entitled to overseas workday relief. However, in view of your comments regarding treaty residence I am prepared as a concessionary measure to issue a direction to limit the operation to [insert percentage] of total earnings paid.

Treaty residence can only be agreed once all relevant facts are known and I am unable to comment on this matter, [enter employee name] will be required to make a claim via his Self Assessment tax return, supported by the required information (Help sheet / certificate of residence from the other country).

I attach copies of the letters sent to your client and his employer.

Please let us know immediately if you become aware of any change to the employee’s circumstances that could affect this limited operation of PAYE.

Treaty relief response to employee

SEES letter EXP25 Treaty Relief Employer (Letter J)

Your employer [enter employer’s name] has applied to us to operate Pay As You Earn (PAYE) on a limited percentage of your earnings for the tax year [enter year].

The application was made on the basis that you are treaty non resident in the UK and only a proportion of your duties are performed here. I have accepted the application and your employer has been authorised to limit PAYE to [enter percentage] of your earnings and this will be applied retrospectively from [insert date]. This approval applies to this employment only.

Treaty residence can only be agreed once all relevant facts are known and I am unable to comment on this matter. You will be required to make a claim via your Self Assessment tax return, supported by the required information (Help sheet / certificate of residence from the other country). Please let us know immediately if your circumstances change.