Short-Term Business Visitors – the hidden compliance risk

If you work for an organisation that employs people in more than just the UK, then its normally a good day in the office when overseas colleagues visit the UK.  Many companies however are unaware of the tax obligations arising from visits to the UK by overseas colleagues and are not therefore fulfilling their UK tax obligations. 

Key take-aways:-

• Without taking action, you could have UK PAYE obligations in respect of any overseas colleagues visiting the UK;
• A Short Term Business Visitor Agreement, filed with HMRC by 31 May, could alleviate the admin burden of this.

In this article, we will cover what the UK issues linked to Short-Term Business Visitors (STBVs) are, ways to ease the administrative burden of being compliant and what to do if you have previously had STBV but never filed anything to HMRC in respect of them.

What is a Short-Term Business Visitor (STBV)

A Short-Term Business Visitor (STBV) is an individual visiting the UK place of business for working purposes from an overseas parent, subsidiary or associated company.  The term is generally aligned to individuals for whom it is not intended for tax to arise in the UK (but see tax below) so typically the work in the UK lasts for less than 6 months (183 days).

Most STBVs who come to the UK do so in an unstructured manner – no formal assignment terms, no senior level authorisation is needed for the costs, travel and accommodation often arranged by the employee themself and claimed back via the employee expense system in their home country.  For some this might look like a couple of days of meetings with UK colleagues and customers, whereas for others they might visit the UK two days every week as they have oversight of a team that sits in the UK company.  

Another important characteristic of a STBV is that unless they are working on a specific and defined project in the UK, there are usually no cost recharges between the overseas employing company and the UK company in respect of the employee’s earnings or other costs.

UK taxation of STBV

There are three factors that need to be considered in order to understand how STBVs are taxed in the UK and where the issues with them arise from.  The three factors in the order that they should be considered are:

1. UK domestic rules
2. Application of Double Tax Agreement (DTA) between the UK and the country in which the employee is considered a tax resident of, and
3. Impact of DTA on UK withholding tax

UK Domestic rules

STBVs do not normally meet the requirements to be “resident in the UK” for a given tax year per the UK Statutory Residence Test, and are liable to UK tax as on a non-resident basis.*

UK domestic rules charge UK income tax on UK sourced earnings.  It is universally accepted by tax authorities that the sourcing of earnings is solely based on the physical location of the individual on the day that earnings were earned. It does not matter (for domestic rules) whether the work was for the UK company or the overseas company, if an employee works just a single day in the UK, they will  have earned some UK sourced earning and therefore within the jurisdiction of UK rules.

As with other employees with UK taxable earnings from an employment, responsibility for reporting the earnings and operating PAYE withholding taxes falls to the UK company.

*There are situations whereby an individual can be considered as a tax resident in the UK per UK domestic rules but treated as a STBV.

Double Tax Treaties

In addition to UK domestic rules, the UK also has an extensive network of Double Tax Agreements with countries around the world.  These double tax treaties override UK domestic law and set out how certain payments, gains and other amounts that may give rise tax in both countries should be dealt with.

The standard model for double tax treaties contains provisions for employees who are resident in one country (Country A) but spend time working in the other (Country B).  The first part of these provisions establishes the right of Country B to tax any salaries, wages or other similar remuneration that are derived from an employment exercised in Country B.

The model treaty then goes on to provide an exemption from Country B’s tax if three criteria are met.  These criteria are:

1. The individual is not present in Country B for a period or periods not exceeding in the aggregate 183 days within any period of 12 months/tax year/year, AND
2. The remuneration is paid by, or on behalf of, an employer who is not resident of Country B, AND
3. The remuneration is not borne by a permanent establishment which the employer has in Country B.

Applying this to our overseas colleagues who visit the UK office a couple of times per year, this treaty provision could provide the overseas visitors with an exemption from UK tax on the wages they earned whilst physically working in the UK.

There is a lot of commentary around the interpretation of these criteria and the terms used which can make the correct application of this provision more complex than it might appear. These are not covered in this article and we recommend that you seek professional advice when applying the terms of a DTA for the first time or to a new scenario.

Impact on UK withholding tax

So far we have established that the UK has a right to tax STBVs when they visit the UK for work but that the DTAs that the UK has established with the vast majority of developed countries, provides them with an exemption from that tax.   You may therefore be forgiven for wondering where the issue is. The answer lies in the interaction between the treaty exemption and PAYE.

The interaction is fairly simple; in that there isn’t one.

The requirement to operate PAYE tax withholding arises when earnings are paid to the employee some of which have been earned in the UK (when the visit/visits take place). The exemption provided by a DTA does not apply however until all criteria are fulfilled.  Given the “not present in the UK for 183 days or more in any 365 day period” criteria, the DTA exemption for a given day worked in the UK is not fully qualified until 365 days after the visit. 

UK legislation simply doesn’t allow employers to forego PAYE obligations on the expectation that an exemption will be due.

This creates the situation, which is the fundamental issue with STBVs, that employers have the obligations to withhold UK income tax and report earnings in accordance with PAYE regulations on earnings for an overseas employee who will ultimately not be taxable on those earnings. Furthermore, in order to recover the income tax withheld from their pay, the overseas STBV will need to register with HMRC and file a self-assessment tax return for the year in which the PAYE tax was withheld for.

Employers who do not fulfil the PAYE withholding and reporting requirements risk being assessed with PAYE failure penalties and detriment to the Company’s risk profile with HMRC.

The situation creates an administrative nightmare for all parties involved – the employee, the employer (or UK company associated with the employer) and HMRC – with absolutely no net tax payable as the end result.

Short Term Business Visitor Agreements – the saving grace for all concerned

Thankfully, HMRC recognised a long time ago that the outcome of the legislative processes described above serves no-one and creates administration for the sake of administration. Whilst changing the legislation is too difficult due to impacts on other tax matters, HMRC do offer a solution which allows employers to avoid the un-necessary withholding of UK income tax on STBVs who will not be liable to pay it due to a DTA exemption – the Short-Term Business Visitors Agreement (STBVA).

STBVAs are a standard agreement between HMRC and a Company under which HMRC allow for a relaxation of the PAYE regulations on STBVs so that no PAYE is needed for STBVs who are not expected to be liable for UK tax on their UK earnings, in exchange for the Company providing certain details of STBVs who visited the UK each tax year.

The information that is required when the company report their STBV each year depends on how many days the STBV concerned visited the UK for. As you can imagine, the more days a visitor is here, the more information HMRC require for the Company. 

Reporting specific details generally is only required for STBVs who spend 60 days or more in the UK during a tax year, however details of all visitors should be retained on file for the statutory period for retention of records.

For STBVs who spend between 60 and 90 days in the UK, a company will need to report the following;

• name and address of the STBV,
• reason for visit/visits to the UK,
• dates of each trip,
• the country they are tax resident of,
• confirmation that there is no formal contract of employment with the UK company, and
• confirmation that no costs of the employee’s remuneration were paid or borne by the UK company.

For an STBV who spends more than 90 days, certificates of residency from their home country tax authority are needed in addition to the above, and for over 150 days HMRC require them to be informed in advance of such visitors and pre-approval for no PAYE to be given.

It is fundamental to a STBVA (and stated in the agreement) that companies must have a process or means which allows them to accurately identify and track overseas employees who visit the UK. There are many ways this can be done ranging from GPS tracking apps on employee’s smart phones, corporate travel provider reporting to security access data or even simply relying on the entries to the visitor book. 

How a company ensures they can identify all STBVs accurately and how the information is gathered to fulfil the annual STBVA reporting requirements, are the two biggest challenges most companies need to overcome when first entering into a STBVA.

A further help for taxable STBVs

Over the years, STBVAs have evolved and HMRC added a very helpful addition to the STBVA which allows companies to operate an annual payroll for any STBV who spent less than 60 days in the UK and has triggered a liability to UK tax which is not relieved by a DTA.

There are a number of reasons why an STBV would not be due an exemption under a DTA; the most common reason is they come for a country with which the UK does not have a DTA in force. Other reasons include; remuneration recharges to UK company, STBV is an employee of an overseas branch of a UK company, or the STBV is a director of the UK company.

The Special PAYE arrangement again waives the need for strict adherence with PAYE regulations and real time reporting and allows only the UK taxable pay to be reported as month 12 earnings by May 31 following the end of the tax year.  Any personal allowance due to the STBV can be applied and benefits included in the calculation too.  This significantly reduces the administrative burden on employers and prevents unnecessary payments being made to HMRC.

Application and annual returns

Applications for an STBVA must be received by 31 May following the end of the tax year you wish the agreement to be applicable from.  There is still time therefore to make the application for 2024/25 as the deadline for this is 31 May 2025.

31 May following the end of the tax year is also the deadline by which the STBVA annual reporting  and Special PAYE calculations have to be filed with HMRC.

Concerns about previous STBVs to the UK when you have not had an STBVA

Many companies are concerned about the implications of applying for a STBVA to start from a given point in time when they know that there were STBVs coming to the UK prior to this date. Companies worry that upon receiving the STBVA application/agreement that HMRC will open up an investigation on the basis of “so you want an STBVA now?  Didn’t have one before?  Let’s check the company did it all by the book”.

It’s an understandable concern but thankfully it is not the approach HMRC take as this would discourage companies ever signing up for an STBVA and encourage ongoing non-compliance.

Companies should undertake a review of the travel data available to them for years prior to the start of the agreement to ensure there weren’t any STBVs who should have been taxed in the UK for those years (a disclosure should be made if you do identify any such individual).  Assuming however the review only identifies STBVs who could have been reported under a STBVA had one been in place, then the company should inform HMRC of the review you have conducted and HMRC will usually, in our experience, accept that as fact and dig no further.

Conclusion

Short Term Business Visitor Agreements and the linked Special PAYE treatment for STBVs are rare examples where HMRC have implemented a scheme which intends to reduce/remove an unnecessary admin burden for employers, taxpayers and themselves, and what has been implemented actually achieves that goal.

STBVAs are a practical and effective tool for companies to manage the tax risks arising from the visits of overseas colleagues (a risk you may not have been aware you had).  Managing the risk via an STBVA will involve considerably less work than adhering to the strict PAYE regulations and provide flexibility should different situations (of an STBV) arise in the future.

If you are a UK company and aware that you have overseas colleagues who visit the UK, I strongly recommend signing up for a STBVA as soon as you can as there are only positives to be had from entering into an agreement in my opinion.

If you would like any assistance with any aspect of STBV regime in the UK or any other employment tax matter, please do not hesitate to get in contact with me.