Scenario two – The US travelling executive, COLA and Overseas Workday Relief
A US employee is sent to the UK for three years. Although she works predominantly in the UK, she also has responsibilities, and makes occasional visits to, other European countries for about 10% of her working time.
The company pays her salary, a Cost-Of-Living Allowance (COLA) and the cost of rented accommodation, which is shared by her partner, who has also come to the UK. The employee receives her basic pay in the US and is not remitting this to the UK. Instead, she is receiving and living off her COLA in the UK.
What are the tax implications and NIC responsibilities?
As the assignment is temporary, a Certificate of Coverage needs to be applied for, which can last a maximum of five years. This exempts the employee from UK NIC, and social security would be paid in the home country.
Tax is due in the UK on the basic pay and COLA. For the 10% of time the employee works outside of the UK, a Section 690 application can be filed by the employer. This exempts the employee from paying tax on 10% of her basic pay received in the US, but her COLA remains taxable in full as it is remitted to the UK. This is referred to as Overseas Workday Relief and can apply for up to three years.