Employees are now more open to secondments or relocations as they often see this as a chance to travel and see more of the world. However, the upheaval and disruption of this can sometimes makes individuals reluctant to accept new opportunities.
As an employer, there are many factors to consider in transferring staff overseas not only from an internal perspective of arranging the transfer between teams, but also from a legal perspective as visas and social security documents will need to be sourced.
As these legal documents are a necessity, these are often prioritised. But consideration should also be given to the tax implications of the transfer. Staff will not be willing to move their life in order to receive a lower disposable income than if they remained in their current role. Equalisation contacts are often used in order to put the employee in the same net position as before the move. But this is often at the expense of the employer, as it is usually the employer that is left footing the tax bill via an increased salary in order to cover any additional tax due.
There are a number of tax efficient reliefs that should be considered which are beneficial to both the employer and the employee.
Temporary workplace relief
Temporary workplace relief is available for those who have a temporary workplace for less than 24 months or those who spend less than 40% of their working time at that particular workplace. The temporary workplace rules allow the employer to reimburse travel (including travel from home to the temporary workplace). It also allows subsistence including meals that are purchased at the temporary workplace and accommodation where overnight stays are required. These can be claimed without creating a benefit in kind liability on the employee which saves both income tax and national insurance for the employee and class 1A national insurance on the employer. Note that if round sum allowances are paid to the employee to cover their costs rather than the scale rate or actual cost reimbursements, these are specifically subjected to PAYE and class 1 national insurance.
In order to be able to claim temporary workplace relief, the individual must be seconded by their current employer to a temporary workplace. Employing a new member of staff on a temporary basis will not qualify for temporary workplace relief.
Relocation allowance is more flexible, as this allowance is also available to those members of staff that have a longer-term secondment (in excess of 24 months) or for new members of staff. The relocation allowance is a tax and national insurance free allowance for the first £8,000 of qualifying moving expenses. Note that this is not a lump sum payment and the relocation expenses actually need to be incurred by the employee. Receipts should therefore be kept in order to substantiate these costs as HMRC may request proof of these expenses.
Overseas Workday Relief
Overseas Workday Relief (OWR) is a relief for certain UK resident individuals who have employment duties that fall both within the UK and overseas. OWR exempts those overseas workdays from being taxed in the UK on the basis that these overseas earnings are not bought into the UK.
The relief is only available under the following conditions:
- The individual is not domiciled in the UK
- The individual makes a claim for the remittance basis for each of the years that OWR is claimed
- The overseas work is carried out within the first three tax years of being in the UK
The overseas earnings become taxable in the UK upon their remittance to the UK, this applies both to the tax year that the employment income is earned and any future tax years, with the remittance becoming taxable in the UK upon its entry into the UK.
It is therefore crucial that the employment income is paid to a new offshore bank account that has been specifically set up for the purpose of receiving this employment income, and only the UK element of the employment income is bought into the UK. The offshore account should not be interest bearing in order to prevent any mixed funds from arising which have punitive tax rates if the funds are remitted to the UK.
One disadvantage of overseas workday relief is that the individual is subjected to income tax on their full salary under pay as you earn (PAYE) via their payslips. As only part of their salary will be subjected to UK tax, the individual will be able to claim a refund of any excess PAYE via their self assessment tax return.
An alternative would be for the employer to run a modified payroll which will only tax part of the employees salary. This would prevent any timing issues for the employees finances. However a self assessment tax return will still be required in order to ensure that the correct amount of income and tax is paid.
Enterprise Tax Consultants can advise on secondments
While the use of HMRC allowances and reliefs can achieve a tax saving for both the employer and employee, they must be implemented with great care as only certain qualifying costs can be reimbursed without creating a tax or national insurance charge.
Enterprise Tax Consultants have extensive experience with employer solutions. We can review your specific circumstances and goals and consider which allowances are most appropriate to your situation.
Contact us for a no-obligation initial consultation with one of our chartered tax advisers about the types of allowances available.
This article was in published in our May 2018 enewsletter. To be added to our mailing list, click here and submit your contact details on our sign up form.