UK/Ireland business trips - Foreign payroll traps?
Almost four and a half million people flew between London and Dublin in 2016 making it the busiest route in Europe and the second busiest in the world. Dublin Airport Authority (DAA) confirmed that a quarter of all of the passengers flying this route are travelling for business.
Many are owner managers or management in SMEs on either side of the Irish Sea. Their main concerns are probably Brexit related, so it’s likely many of them will have given very little thought to whether they are triggering foreign payroll tax exposures as a result of their foreign business trips.
However tax authorities in Ireland and the UK are clamping down on non-compliance in relation to PAYE and business travelers making it one of the hot tax topics of the moment.
In this article we have set out a summary of the PAYE rules and obligations for business travelers to and from the UK. And just to remember that this does not always involve a flight - it includes business trips to and from Northern Ireland.
Business travel – Ireland to the UK
Business travelers from Ireland to the UK are liable to UK payroll taxes from day one. Just because a business traveler may ultimately be exempt from UK tax under the provisions of the Ireland / UK Double Tax Agreement does not negate the UK PAYE requirement.
This may come as a surprise to many business owners who mistakenly believe that payroll taxes do not arise unless the individual has spent 183 days in the UK. There are also other common misconceptions including that once payroll taxes are being paid in Ireland there are no exposures abroad, if the individual is not resident in a particular country then taxes do not arise there on employment income and if there is a Double Tax Treaty in place than there are no tax issues in the other jurisdiction.
It is possible to make an application to HMRC under a Short Term Business Visitor Agreement (STVTA) for exemption from UK payroll taxes based on relief being available under the Ireland /UK Double Tax Agreement.
Historically, HMRC did not always insist on an STBVA where the conditions to claim treaty relief were met. However HMRC has since toughened its stance and in the absence of a STBVA they can insist that UK PAYE should be operated.
There is an increased focus on business travelers in relation to UK PAYE audits. HMRC have indicated that where no STBVA is in place they will review the payroll operations of the employer more closely. Where there are failures in relation to compliance they are seeking interest and often penalties. HMRC can recover tax for four, six or 20 years depending on the circumstances, and National Insurance for six years.
We recommend that employers should review their UK PAYE obligations and consider applying to HMRC for an Appendix 4 Scheme (EP Appendix 4) and approval for the non-inclusion of the short term business travelers on UK payroll. The employer must put in place a reporting system to track its business visitors to the UK. Failure to do so will result in the employer being required to operate UK PAYE and incur additional costs associated with having to file UK Income Tax Returns for its employees to reclaim the UK payroll taxes.
In general an individual who is employed by an Irish branch of a UK company will not qualify for exemption under EP Appendix 4. In the past this resulted in PAYE having to be operated in real time from day one. HMRC have recently announced a new simplified annual PAYE system which will allow employers to account for the UK taxes via a single end of year payment providing the individuals are working in the UK for no more than 30 days in the UK tax year.
It was recently reported that Irish nationals remain the largest proportion of non- British nationals leading UK based companies, with some 60,892 Irish directors in the UK leading more than 16,000 companies. Their UK tax situation is different depending on whether the director receives a separate fee for his/her director’s duties, whether HMRC accept that the UK duties are incidental in nature and where the duties are performed. It may be advisable for the director to receive a separate fee for the work that will be performed in the UK (such as attendance at Board meetings, etc.) to provide more clarity in relation to the amount that should be subjected to UK PAYE.
Business travel - UK to Ireland
Revenue’s Statement of Practice (SP – IT /3/07) in relation to the PAYE obligations in relation to non-Irish employments exercised in Ireland was updated on 22 December 2016.
As a result of the changes, many businesses including SMEs (many of whom are already struggling with Brexit, currency fluctuations and the increased costs of compliance) will be forced to operate Irish PAYE for foreign employees with an insignificant number of working days in Ireland.
The general rule is that Irish PAYE obligations will now arise after just 30 working days in Ireland. A working day is any day in which any work is performed in Ireland.
However this assumes that the duties that they perform are incidental in nature. So in fact in some instances employers with employees working just one day in Ireland may be subject to the PAYE system.
The exposures can be significant. For example a company with five employees who visit Ireland for 1 day a week over four years would trigger a PAYE/USC exposure of c. €140k (including interest and penalties) on a re-grossed basis.
We have questioned the timing of these changes when Ireland should be aiming to attract talent and expertise to its shores to ensure we capitalize on the opportunities brought about by the Brexit vote and representations have been made to the Department of Finance in this regard.
However our advice at this time is for employers to review business travel to Ireland during 2017 and consider whether Irish PAYE needs to be operated given the changed landscape brought about by these changes.
The main issue with business travel is that generally individuals within the business may not be fully informed. There is often uncertainty as to who within the business has responsibility for compliance. Is it HR, finance, etc.? Remember also this is not just foreign payroll tax compliance that’s an issue – there may be corporation tax, VAT, immigration, social security implications to name a few.
All too often it may be the case that individuals are uncertain on who within the business is travelling, where they are travelling to and what they are doing whilst there? Therefore, it is important that these issues are identified and addressed. An important first step is to put in place a robust tracking system so that the company has the facts to consider what foreign tax obligations arise. If your business does not carry out this review, Revenue/HMRC may well do so for you.