Short-Term Business Visitors (STBVs) – are you ready for your Business Risk Review (BRR +)?

This article provides a refresher of the employer obligations in respect of STBVs for the upcoming 31 May deadline, as well as some of the common pitfalls that may result in STBV non-compliance, to support you with your BRR+ readiness assessment.

In the absence of an Appendix 4 or 8 arrangement with HMRC, Pay As You Earn (PAYE) withholding needs to be operated from the first substantive workday an STBV spends working in the UK. In practice, this means operating a monthly UK payroll for ad hoc business travellers, which can represent a significant cost and administrative burden to employers. Use of HMRC’s Appendices 4 and 8 concessions can greatly reduce this burden.

Appendix 4

The Appendix 4 arrangement relaxes the strict PAYE requirements for employees on short term business trips to the UK provided the following conditions are met:

• The employee is resident in a country with which the UK has a double taxation agreement (DTA) containing a ‘Dependent Personal Services’ or ‘Income from Employment’ article
• The employee is coming to work in the UK for a UK company or the UK branch of an overseas company, or
• The employee is legally employed by a UK resident employer but economically employed by a separate non-resident entity
• The employee is expected to stay in the UK for 183 days or fewer in any twelve month period

HMRC expects businesses to proactively monitor business travel during the tax year by implementing a robust tracking system that has the following minimum requirements:

• Employees will periodically report days spent in the UK on business to the central point controlling this arrangement
• Employees should not spend more than 30 days intermittently in the UK in any twelve month period without reporting to that central point

The level of reporting required depends on the number of days the employee spends in the UK in a UK tax year. The higher the day count, the more information needs to be reported to HMRC.

Note, there are no requirements to fulfil for either the employer or employee for the ‘1-30 day’ category beyond being able to demonstrate that you have a tracking process in place.

Employers are required to submit their Appendix 4 report to HMRC annually by 31 May.

Appendix 8

Where STBVs are not eligible for the Appendix 4 agreement, the Appendix 8 concession may still provide some relief from monthly PAYE submissions. The Appendix 8 is most commonly used for STBVs from locations with which the UK does not have a DTA and from overseas branches of a UK company. For STBVs who have no more than 60 substantive UK workdays in a tax year and who are not subject to Class 1 NIC, the Appendix 8 concession allows employers to account for UK PAYE on their employment income annually, instead of monthly.

The payroll submission is due to HMRC by 31 May and should include non-cash benefits (thereby removing the need for separate P11D reporting) and, where appropriate, gross-ups for tax-equalised STBVs. Where eligible, the UK’s tax-free personal allowance should be factored into the STBV’s tax calculation. This may cover their UK-taxable income for the period in full, resulting in no ultimate tax due to HMRC.

As part of any BRR+ review, HMRC will test whether your tracking processes are robust and that those processes are sufficient to identify those employees who are eligible for Appendix 4 reporting, employees who should be taxable under Appendix 8 and those that sit outside both appendices. Consideration of the following is essential as you look to build a robust governance process:

• Do you have overseas branches of the UK company or representative (rep) offices within your corporate structure?
• Have you reviewed whether all STBVs are coming to the UK from locations with which the UK has a DTA?
• What duties does the STBV perform in the UK? Are these duties incidental or substantive in nature?
• Who does the STBV report into whilst in the UK and do they remain economically employed outside the UK?
• Are any of the STBVs also directors of the UK company? If so, do they travel to the UK for the performance of board duties?
• Where do the STBV’s costs sit? Are any direct staff costs recharged to the UK company?
• Have you considered your social security position? The Appendix 4 and Appendix 8 arrangements relax your PAYE obligation, they do not manage any National Insurance obligations.

We explore some common pitfalls related to STBV compliance in the examples below:

1. Remote workers and holidaymakers

Many businesses have historically relied on welcome logs at the office’s front desk to monitor the UK presence of STBVs, however this may not capture the full information needed for compliant reporting.

A day for Appendix 4 reporting purposes is ‘any part of a day’ an STBV spends in the UK. Employers need to have visibility of all days individuals spend in the UK, including those where an individual may not set foot in the office and non-working days. Examples may include working from a hotel before a lunchtime flight home or an employee with family in the UK who may extend their business trip to accommodate a weekend or a holiday period.

In the most extreme case, an STBV may inadvertently spend more than 183 days in the UK, thereby breaching one of the key DTA thresholds to claim relief in respect of their employment income. If an employee is no longer eligible for Appendix 4 reporting, they may trigger various obligations in the UK, including a payroll obligation. As such, having a robust process to identify individuals before they exceed key thresholds is critical.

2. Non-resident directors

You may have individuals visiting the UK both in their capacity as an employee and as a statutory director of your UK business. These individuals may not be eligible for Appendix 4 reporting and will need to be assessed on a case-by-case basis.

HMRC consider statutory directors as office holders and the income relating to the directorship should be subject to Pay As You Earn (PAYE) and National Insurance (if applicable) through UK payroll. Consideration also needs to be given to the taxation of travel and subsistence expenses.

Where a clear delineation of responsibilities and associated remuneration is documented (for example, through dual contracts) DTA relief may still be possible, but it is important that your processes capture and assess these individuals appropriately to ensure compliance.

3. Growing businesses

You may be expanding into locations outside of the UK. Consideration will need to be given as to how to report STBVs from these locations. As your business evolves it will be important to ensure you remain compliant.

A new entity overseas may initially be registered as a rep office or branch of the UK company. As the Appendix 8 can only be used where an employee spends less than 60 substantive workdays in the UK, an assessment of whether any time spent working in the UK could be classified as incidental is critical.

You may decide at a point in the future to incorporate your rep office or branch and your STBVs may become eligible for Appendix 4 reporting. It’s important to review your corporate structure regularly to ensure it’s aligned with your STBV reporting.

Where groups acquire or dispose of businesses throughout the year, consideration should be given as to whether acquired entities need to register one or more PAYE references under Appendix 4 for inclusion within the consolidated group submission.  The group should consider whether any Appendix 4 or 8 requirements are removed following the disposal of an entity.

Additionally, it is important to record days correctly where STBVs are visiting more than one UK entity within the group under multiple Appendix 4 arrangements. The requirement is to report any part of day in the UK. As such, an STBV visiting the UK for a total of 5 days across two different businesses would need to report 5 days under each respective Appendix 4 agreement, albeit the group may ultimately submit a consolidated group report to HMRC.

HMRC will seek assurances that your business has clearly documented tax policies and procedures alongside suitable tracking and reporting processes. At Evelyn Partners we can support your business as follows:

• We can critically review your current STBV monitoring processes, data systems and your current STBV population/travel pattern, to identify areas for improvement and immediate focus
• We can assess your arrangements to identify current and future risks, and advise on reducing risk in this area. This can include advising you on the development and implementation of an end-to-end solution to manage the compliance for your business travellers, which utilises technology where appropriate
• We can support you with your annual compliance obligations including:
  • the preparation of your Appendix 4 report and submission to HMRC
  • support identifying and calculating the information required to be reported on your Appendix 8 payroll
  • end-to-end operation of your Appendix 8 payroll

If you would like to discuss how any of the above could impact your business, please do get in touch with your usual Evelyn Partners contact or the contacts listed.

Approval code: NTEH7042490