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Are you hiring a foreign national to work in the UK?

1st April 2022

As the way we work continues to evolve at a global level, employers are looking to appoint the right people to move their organisation forward.

For companies operating in the UK, their human resource requirement may mean recruiting or assigning individuals from overseas.

We have therefore highlighted below the main areas that employers may wish to consider when appointing a foreign national to work in the UK.

Legal requirements 

Employers are under a legal duty to check that the individual has the right to work in the UK and therefore the necessary documentation needs to be in place before the employment begins to ensure that the individual is complying with the UK immigration rules.

Certain Worker Visas may require the employer to hold a Sponsorship Licence. 

Salary and remuneration package

Consideration needs to be given to the remuneration package that an employer is to provide.

Where a foreign national is being assigned to the UK by his employer, there may be additional benefits that the employer would wish to offer to attract the worker to accept the assignment. 

A typical expatriate compensation package may include:

  • Relocation costs
  • Cost of living allowances
  • Home leave reimbursements
  • Housing allowances or the provision of accommodation
  • Tuition Costs
  • Expatriate premiums for working in the UK
  • Tax costs under a tax equalisation or tax protection policy

The above list is not exhaustive but does represent a significant additional cost to a business.

The tax and national insurance implications of providing the above also needs to be considered.  

PAYE and National Insurance

UK employers must account for PAYE and NIC deductions from all employees whether UK or foreign nationals.  

For expatriate assignees who may not physically be paid in the UK, an expatriate payroll may need to be administered to ensure the correct UK withholding taxes are paid across to HMRC timely. 

Certain foreign nationals working in the UK may not be liable to UK National Insurance initially.

This may be where they are able to continue to pay social security contributions in their home country under an A1 from Europe, per the terms of a social security agreement, and/or they are working in the UK temporarily and have arrived from a rest of world location.

The rules are complex and each case would need to be looked at individually.

Tax Costs

Tax rates on employment income can differ widely from country to county meaning a foreign national may be exposed to a greater or lesser tax burden on their remuneration package when coming to work in the UK.

If an employee continues to work in their home country as well as the UK they may be liable to tax in both countries.

Employers may therefore consider bearing the cost of any potential tax differences between the home and host country by operating either a tax equalisation or tax protection policy, or paying the host country tax using a loan arrangement. 

Under tax equalisation, the assignee pays no more and no less tax on assignment than they would have paid had they stayed at home.

In this scenario the employer is responsible for paying all actual taxes in the home and host country and withholds from the employee a hypothetical tax, equal to the amount of tax they would have paid had they not undertaken the assignment.

Under tax protection, which is less commonly used, the employee is responsible for paying all taxes due, but where the tax in the host country is higher than in the home country the employer reimburses the employee for any excess tax.

Under either of these arrangements tax can be a significant cost for employers, especially where the home country taxes are lower than the UK.

Bear in mind the tax itself is a taxable benefit in kind and therefore needs to be grossed up for UK tax purposes.

UK tax costs can however be mitigated where an employee qualifies for overseas workday relief as detailed below.

Alternatively, using a loan arrangement would mean that the employee bears all the overall tax costs; however, the employer helps them with any cashflow disadvantage as the loan will only be repaid once the employee has made a claim for foreign tax credit relief.

Here, there could be additional benefit in kind issues where the loan exceeds £10,000.

Overseas workday relief

Certain non-UK domiciled employees are exempt from UK tax on their employment income to the extent that this is attributable to non-UK duties for the year of arrival and the following two years.

The income relating to the overseas workdays must not be remitted to the UK, meaning it must be paid and retained offshore.

This is a valuable tax saving although consideration should be given to any tax implications that may arise in the non-UK jurisdictions where the employee is working.

In conclusion the above is a brief overview of the key considerations for employers when looking to hire a foreign national to work in the UK.

If you would like to explore any of the above in more detail our global mobility team here at Bishop Fleming will be more than happy to assist.

You can contact any one of us either through your usual contact or by contacting a member of the Employer Solutions team

Our Employer Solutions Knowledge Hub contains more information on how our team can help you attract and retain talent for your business.

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