By Mark Harwood, Associate Director, Deloitte
A variety of trends have seen international business travel become a critical enabler of business strategy. This includes macro-economic forces, such as globalisation, emerging market growth and talent shortages, as well as a shift in employee preferences towards more flexible and agile working arrangements. This increasing demand, coupled with the ever changing legislative landscape and elevated focus from tax authorities, means that an ad hoc approach to business travel compliance is no longer fit for purpose- employers have a mandatory obligation to track where their workforce are. Therefore, we are increasingly seeing UK companies addressing their short term business visitor (STBV) compliance as a priority. So why act now?
What are the issues?
Employers have an obligation to work out if employees based outside of the UK that travel here for work purposes are potentially exposed to the UK’s income tax regime. These employees frequently fall below the radar and where companies do have policies in place for more formal expatriates, these short term visitors are often not covered. Action is therefore required for both the employee and employer.
Why should businesses address their STBVs
- HMRC’s attitude towards STBVs has tightened over recent years and is now identified as a main risk area. HMRC’s knowledge and focus is increasing incrementally and they have experience of finding errors with how businesses manage their STBV populations. As a result, HMRC are now asking additional questions in this area.
- Reasons why companies should address STBVs:
- HMRC can levy interest and penalty charges where income tax withholding (PAYE) has not been operated;
- Potential cash flow issues where income tax would need to be paid in 2 locations;
- Reputational risk;
- Getting it wrong could have a detrimental effect on a business’ HMRC risk rating;
- Companies have a duty of care to know where their employees are working. If STBVs are working for a UK entity, someone within that entity should know what they are doing whilst in the UK.
What should companies be doing?
One of the biggest battles that needs to be addressed is how companies track their non UK employees who visit the UK. Employers are required to have a robust tracking mechanism in order to track STBVs (this is not a new requirement). Companies have different ways of obtaining travel data from employee input such as online calendars or timesheets to more of a centralised input such as travel agent information, expense system reports and office sign in process.
The travel data then needs to be analysed before determining if a PAYE obligation exists, and where it does, whether this can be mitigated by reporting under an STBV agreement with HMRC (see below). This determination can be complex as it is not always clear-cut.
The annual STBV report
Once companies are aware that there are non UK employees working in the UK, to relax the PAYE and UK tax return filing obligations, they can request to have an STBV agreement in place with HMRC. This signs the employer up to providing a report of business visitors that came to the UK in the tax year and needs to be submitted to HMRC by 31 May following the end of the respective UK tax year. So 31 May 2019 for the 2018/19 UK tax year is fast approaching!
Other considerations for another day!
I have just touched upon the income tax considerations above, however there are a number of other areas that need to be considered alongside this:
- Social security – is UK NIC payable and is any documentation required?
- Immigration – do employees have the right to work in the UK and what documentation is required?
- Non-resident directors of the UK business are not able to be covered under the STBV agreement.