The HMRC recently clarified their position that employers with employees who fall within the scope of a short-term business visitor agreement (STBVA) must still complete Employment Related Securities (ERS) reporting for those short-term business visitors with ERS income. HMRC’s view is that the reporting obligation for those employees with ERS who visit the UK, regardless of the number of days spent in the UK, is unaffected by their inclusion on an STBVA (and therefore not being ultimately liable to UK tax).
Pay as you earn (PAYE) is the HMRC system for collecting income tax and national insurance contributions (NICs) from employees’ wages or salaries. The UK imposes strict PAYE tax withholding obligations on UK employers. When an employee from an overseas parent, subsidiary, or associated company visits the UK to work on a planned project or on an ad-hoc basis, PAYE withholding is required. There is no de-minimis threshold for this obligation, so PAYE is due from an employee’s first day of work in the UK.
However, STBVAs allow businesses’ PAYE obligations to be relaxed when those employees coming to the UK originate from countries with which the UK has entered into a double taxation agreement (DTA), and so would not be subject to UK tax.
HMRC state in their Employment Related Securities manual that:
ERS reporting obligations are not mitigated or waived by the provisions of EP Appendix 4 [STBVA].
The point of concern for employers is that those employees that are within an STBVA should not ultimately be charged to UK tax under the terms of a double taxation agreement (DTA); however, there may be potential reporting obligations regarding that treaty-exempt ERS income. Most notably, employers with employees who are treated as short-term business visitors for PAYE purposes will need to complete the “Other” non-tax advantaged report within their ERS annual report.
To be subject to this reporting requirement, there is a prerequisite that the UK entity the short-term business visitor is visiting must act as the “host-employer” and the visitor must work at that host-employer. Both these terms should be fully assessed in the context of the visitor’s circumstances and the ERS income the visitor expects to receive.
If a short-term business visitor is awarded or granted non-UK ERS income during their UK visit, that granting of the ERS income should be reported on that tax year’s ERS annual report. Additionally, if a short-term business visitor holds any form of ERS, such as an restricted stock units or share options, that has a vesting/exercise-to-grant period that includes days worked in the UK at a UK employer, the ultimate exercise will be reportable on the ERS return. This is despite the fact the employee may not have worked at the UK employer at the point of exercise or for the entirety of the relevant tax year for which the ERS annual report is made.
HMRC therefore require employers to determine the equity award position of all short-term business visitors when they come to the UK and then track that throughout the subsequent life of that ERS income, so that any ultimate exercise event can be reported on the relevant UK ERS annual report.
Employers should:
Notwithstanding the above, HMRC have the power to impose penalties up-to GBP 5,000 for ERS returns that contain a material inaccuracy.
Daniel Lambert
Sam Westlake
BDO in United Kingdom
Background
Pay as you earn (PAYE) is the HMRC system for collecting income tax and national insurance contributions (NICs) from employees’ wages or salaries. The UK imposes strict PAYE tax withholding obligations on UK employers. When an employee from an overseas parent, subsidiary, or associated company visits the UK to work on a planned project or on an ad-hoc basis, PAYE withholding is required. There is no de-minimis threshold for this obligation, so PAYE is due from an employee’s first day of work in the UK.However, STBVAs allow businesses’ PAYE obligations to be relaxed when those employees coming to the UK originate from countries with which the UK has entered into a double taxation agreement (DTA), and so would not be subject to UK tax.
HMRC Update
HMRC state in their Employment Related Securities manual that:ERS reporting obligations are not mitigated or waived by the provisions of EP Appendix 4 [STBVA].
The point of concern for employers is that those employees that are within an STBVA should not ultimately be charged to UK tax under the terms of a double taxation agreement (DTA); however, there may be potential reporting obligations regarding that treaty-exempt ERS income. Most notably, employers with employees who are treated as short-term business visitors for PAYE purposes will need to complete the “Other” non-tax advantaged report within their ERS annual report.
To be subject to this reporting requirement, there is a prerequisite that the UK entity the short-term business visitor is visiting must act as the “host-employer” and the visitor must work at that host-employer. Both these terms should be fully assessed in the context of the visitor’s circumstances and the ERS income the visitor expects to receive.
If a short-term business visitor is awarded or granted non-UK ERS income during their UK visit, that granting of the ERS income should be reported on that tax year’s ERS annual report. Additionally, if a short-term business visitor holds any form of ERS, such as an restricted stock units or share options, that has a vesting/exercise-to-grant period that includes days worked in the UK at a UK employer, the ultimate exercise will be reportable on the ERS return. This is despite the fact the employee may not have worked at the UK employer at the point of exercise or for the entirety of the relevant tax year for which the ERS annual report is made.
HMRC therefore require employers to determine the equity award position of all short-term business visitors when they come to the UK and then track that throughout the subsequent life of that ERS income, so that any ultimate exercise event can be reported on the relevant UK ERS annual report.
Immediate Actions for Employers
Employers should:
- Identify whether the UK employer (which must be either a UK branch or a UK company of an overseas employer) is the host employer of the employee during their visit to the UK at the time of the reportable event, including but limited to the awarding, granting, or exercising of ERS.
- Review their methods for identifying, reporting, and controlling short-term business visitors’ travel to the UK.
- Integrate datasets of employees with UK business travel and who hold ERS. For ERS reporting, employers will be required to at least provide the employee’s:
- Full legal name;
- National Insurance Number (if they have one) and/or their date of birth; and
- The PAYE reference number of the UK host employer.
- Inform employees of potential UK reporting obligations when they have:
- Visited the UK; and
- Received ERS income.
- Consider integrated ERS platforms that track employees’ travel to multiple jurisdictions. BDO’s QuickTrip solution can assist in identifying this and other compliance issues for international business travellers.
Notwithstanding the above, HMRC have the power to impose penalties up-to GBP 5,000 for ERS returns that contain a material inaccuracy.
Daniel Lambert
Sam Westlake
BDO in United Kingdom