Using payroll to manage tax costs when planning global secondments

Despite employers facing difficult financial times, highly skilled individuals continue to be seconded from overseas offices in many business sectors. In the current economic climate, costs are clearly a major factor in any business decision, and the primary aim when considering a secondment is to secure the right person at the right price in the right place. Without adequate planning though, host employers risk incurring significant, unanticipated costs through additional taxes on unexpected assignee expenses.

Communicating to all stakeholders and costing a secondment appropriately before an arrival or departure will serve to prevent any surprises at a later date and manage secondees expectations.

Using payroll to manage tax

The most important tax objective is to ensure that the employer and employee are compliant in both locations, and avoid any penalties and interest associated with incorrect or non filing of statutory information.

By applying payroll properly from the outset, the secondee has the correct pay, the tax authority the right amount of tax and the costs are clearly tracked and monitored.

With higher tax rates coming into force, getting compliance right and incorporating planning has to make sense.

Payroll can be used in a variety of ways to manage the tax cost. For example, upon application, HMRC allow employers to operate a modified expatriate payroll. This enables the right amount of tax to be paid by applying the reliefs then and there rather than waiting for tax returns to be filed and refunds made.  

Overseas business visitors

Monitoring a company’s intentions regarding the movement of their employees is essential to ensuring compliance with all local authorities. Two examples which often cause additional costs to spiral out of control are short term business visitors and individuals working for the overseas office for short periods.

Short Term Business Visitors

We do hear about short term assignees coming to the UK for six months and still being here three years later, still having their salary paid at home with home statutory withholding. Assignees do slip through the net but careful monitoring of these short term visitors will save lengthy recalculation on discovering that the assignee has been working in the UK for more than 183 days. Visitor’s books, flight details and swipe cards can all facilitate the process but no matter how this job is completed, HMRC in the UK will want its portion of taxes, as will the IRS in the US (in the case of a UK-US secondment).

Individuals working for the overseas office for short periods

An individual working on a short term contract overseas or regularly attending meetings at a head office location may, through local tax laws, have withholding in the host country whilst still having a tax liability in the UK on the worldwide earnings. If the right action is taken HMRC will advance the double tax relief through the individual’s PAYE code.

Action

In all respects whatever the length of the assignment have clear policies and processes and communicate them!