This article provides an overview of instances when businesses need to set up a UK payroll scheme, whether they are UK companies or foreign companies.
UK Businesses – When to set up a payroll scheme
The most common reason why a UK company will have an obligation to register for a Pay As You Earn (PAYE) scheme to make withholdings for income tax and/or national insurance contributions from its employee’s earnings is having a contract of employment in place and the staff are paid at least the Lower Earnings Limit of £123 per week (for 2023/24).
A UK company may also need to operate PAYE in circumstances where:
- It has employees working at its overseas branches.
- Its employees receive notional payments from third parties – compensation of a non-monetary form such as vouchers, gains from a share option or another readily convertible asset.
- An overseas employee of a group company (with no UK presence) is working at or under the control of the UK company, even if it’s the overseas group company paying the employee’s salary.
To assess whether an overseas group company employee is working at or under the control of the UK company, the following factors should be considered:
- Can the UK company exercise control or management over the employee?
- Are the services being performed by the employee integral to the business of the UK company and is the UK company taking on the risk and responsibility for the results produced by the employee?
Where the above questions are answered affirmatively, it is likely that the UK company needs to operate PAYE with respect to that overseas employee.
Please note that the above is a simplification, as actual questions are more complex. We recommend that you contact us for expert advice as failure to comply with UK payroll obligations may result in significant fines, such as a penalty of 100% of potential lost revenue imposed by HM Revenue & Customs.
Foreign Businesses – When to set up a payroll scheme
Ordinarily, an overseas company may not have an obligation to operate PAYE in the UK. However, an obligation to operate PAYE will arise where it has UK tax presence.
Straightforward examples of a UK tax presence are having a UK branch, agency or representative office of the overseas company.
Other examples of a UK tax presence will depend on the facts and circumstances of an overseas company’s activities. For example, whether there’s a UK address where HMRC contact the overseas company or enforce compliance. There are additional complications for non-UK companies, as there is then a need to consider whether there is a requirement to register in the UK as a branch per the Overseas Companies Regulations (OCR) 2009. (These Regulations impose various registration and filing requirements on companies incorporated outside the United Kingdom).
How we can help
At Abbiss Cadres, we offer payroll services as part of our multi-disciplinary offering to help businesses move and manage their people. This includes assessment of a company’s payroll obligations in the UK and, if required, set up and operation of UK payroll.
We can also provide more detailed technical advice on whether a UK tax presence has been created. For more information about how we can help, please contact us on the details below.
