The UK’s immigration regime and tax policies, that continue to be in place in a post-Brexit world, are designed to attract the brightest and the best of the business world and they appear to be working. In 2019, before the Covid pandemic stopped international travel, a record 28,734 businesses registered as sponsors allowing them to recruit overseas nationals.
But, says Tom Boniface, when businesses bring senior executives into the country careful thought and planning is needed if those individuals are to avoid paying unnecessary tax. And that planning should start before the individual steps off the plane.
Firstly, a business and the relocating executive will need to consider the remuneration package. Whilst an employee in the UK will have to pay PAYE and National Insurance contributions, the benefits and relocation package that accompanies senior appointments will often have considerable tax implications.
It is not uncommon for the relocation and benefits package to cover the cost of renting a home, school fees, a car or transport on top of the salary paid. How these are structured will have tax implications for the individual.
In certain jurisdictions such ‘benefits’ may not be considered part of the employee’s taxable remuneration, however in the UK they generally are unless certain conditions are met. This means that where the benefits package includes the above, the employer should not fall foul of the UK tax regime and report these correctly.
If the package requires the individual to pay for their own accommodation, will they rent or buy? If they choose to buy, how will they secure a mortgage if it is needed? Arriving execs often fail to realise that it is more tax efficient to bring cash into the country before they arrive than when they already have feet on the ground.
Secondly, the length of stay in the UK will also play a significant role in the amount of tax that individual will pay, as too will any periods of work-related travel.
The UK government recognises that many inbound executive placements are for a limited time period and as such offer several valuable tax reliefs.
For work periods of less than 24-months, senior execs can claim Detached Duty Relief (DDR). This relief allows, for example, the cost of accommodation to be offset against income tax. This is often overlooked and particularly beneficial if living in London where rents are often high.
When a senior executive is based in the UK but spends time travelling for work, they should consider Overseas Workday Relief that allows an individual to shield salary earned overseas from UK tax authorities.
If the senior executive on placement to the UK decides to return home after a few years, there is likely to be few if any ongoing tax implications.
However, if the individual chooses to stay for longer periods of time or perhaps wishes to settle permanently in the UK, there are likely to be considerable tax implications, particularly inheritance tax.
It is recommended that senior executives working in the UK for any period of time take independent and specialist advice on their tax position. Whilst a business and its HR team will look to take much of the stress of a move off the shoulders of its staff, they will not necessarily fully understand the tax impact of their actions. An unexpected and unnecessary tax bill.
There will be further technical content on the topic of international mobility from Tom Boniface following our Finance Focus webinar. You can find out more at www.krestonreeves.com/finance-focus.
Tom Boniface, Private Client Tax Senior Manager at Kreston Reeves.