Overseas employee expenses
Discussion
We have some employees based overseas. They're pukka foreigners, and we pay them through local payroll services.
However we reimburse their expenses directly. It's become custom for them to 'pad out' their expenses somewhat. We have a reasonably generous monthly limit - and they make sure they claim it. They're covered by receipts etc, but of course they're written in foreign too! Mostly the expenses would be for travelling costs.
I recognise that we might be in some difficulty with this approach for UK based staff, but what are the dangers of allowing overseas staff to do this?
Is the taxperson likely to be even able to pick this up, much less do anything about it?
However we reimburse their expenses directly. It's become custom for them to 'pad out' their expenses somewhat. We have a reasonably generous monthly limit - and they make sure they claim it. They're covered by receipts etc, but of course they're written in foreign too! Mostly the expenses would be for travelling costs.
I recognise that we might be in some difficulty with this approach for UK based staff, but what are the dangers of allowing overseas staff to do this?
Is the taxperson likely to be even able to pick this up, much less do anything about it?
Pick what up?
Even if the staff were UK based they shouldn't be liable to any sort of Income Tax charge on any expense amounts paid to them in respect of justifiable out of pocket reimbursements. However, the amounts paid would need to be disclosed in the company's annual P11d form for the individual concerned.
As these overseas staff are not subject to UK tax (as they are non UK resident), then they should suffer no UK tax and I expect that there would be no need to report expenses paid to those individuals on a P11d either.
Even if the staff were UK based they shouldn't be liable to any sort of Income Tax charge on any expense amounts paid to them in respect of justifiable out of pocket reimbursements. However, the amounts paid would need to be disclosed in the company's annual P11d form for the individual concerned.
As these overseas staff are not subject to UK tax (as they are non UK resident), then they should suffer no UK tax and I expect that there would be no need to report expenses paid to those individuals on a P11d either.
What is it to the Revenue?
If you. as a company, are willing to pay these people this money, then that, as far as your business is concerned, is a legitimate business expense incurred by your company. It doesnt REALLY matter what you want to classify this cost as. As far as the Revenue need to know, this is the cost to your company of employing these individuals. As they are non-UK residents, they do not fall to be taxed under UK tax regulations.
If you. as a company, are willing to pay these people this money, then that, as far as your business is concerned, is a legitimate business expense incurred by your company. It doesnt REALLY matter what you want to classify this cost as. As far as the Revenue need to know, this is the cost to your company of employing these individuals. As they are non-UK residents, they do not fall to be taxed under UK tax regulations.
Eric Mc said:
What is it to the Revenue?
If you. as a company, are willing to pay these people this money, then that, as far as your business is concerned, is a legitimate business expense incurred by your company. It doesnt REALLY matter what you want to classify this cost as. As far as the Revenue need to know, this is the cost to your company of employing these individuals. As they are non-UK residents, they do not fall to be taxed under UK tax regulations.
If you. as a company, are willing to pay these people this money, then that, as far as your business is concerned, is a legitimate business expense incurred by your company. It doesnt REALLY matter what you want to classify this cost as. As far as the Revenue need to know, this is the cost to your company of employing these individuals. As they are non-UK residents, they do not fall to be taxed under UK tax regulations.
So, for a UK based employee, the Revenue might disallow expenses and declare them to be a benefit, therefore causing the company to be liable for NI and the employee to be liable for tax, there's simply no mechanism for that to happen in respect of foreign based employees?
There are two angles at which the payment of expenses to employees need to be viewed.
Firstly, there is the question of whether the expenses paid to the employee can be claimed as tax deductable costs by the company. The key factor to whether these costs are allowable deductions or not is not related to the fact that the costs were paid in the form of an "Expense Claim to an Employee", but whether the costs were incurred "wholly and exclusively for the purpose of thr trade". If they were, then they can be deducted by the company as a legitimate business expense. The only time they would be disallowed would be if they were of a class of expenditure which is specifically not allowed - such as "Entertaining Expenses".
Secondly, the question arises as to what is the tax treatment of the amount paid to the employee in the hands of the employee. This can either be a straight tax charge on the amount paid or the return of the expense amounts paid to the employees as "Benefits in Kind".
If the expense is a simple reimbursement, then there should be no tax charge arising on the employee - provided the information is correctly disclosed on a P11d and a Section 198 claim is made by the employee.
If the amount paid is a "general" expense amount not linked to specific reimbursements, there may be a BIK arising depending on whether the employee is allowed keep the whole amount or pays back any excess claims. If he does, then he would be taxed on the "excess" retained by him.
Apart from business related expenses, if ANYTHING is paid directly to an employee (usually wages)or on or behalf of an employee (usually a BIK) it will be subject to PAYE and NI. However, if the PAYE and NIC is correctly disclosed and paid over, this should ensure that the full cost of providing these amounts to the employee, including the related tax and NI, should be fully allowable costs as far as the business is concerned (subject to the specific exclusions mentioned above).
If the employees are not based in the UK then they CANNOT be subject to UK tax as they are not resident in the UK for tax purposes. That will not stop the amounts being paid to these individuals being tax deductable costs as far as the company is concerned.
Firstly, there is the question of whether the expenses paid to the employee can be claimed as tax deductable costs by the company. The key factor to whether these costs are allowable deductions or not is not related to the fact that the costs were paid in the form of an "Expense Claim to an Employee", but whether the costs were incurred "wholly and exclusively for the purpose of thr trade". If they were, then they can be deducted by the company as a legitimate business expense. The only time they would be disallowed would be if they were of a class of expenditure which is specifically not allowed - such as "Entertaining Expenses".
Secondly, the question arises as to what is the tax treatment of the amount paid to the employee in the hands of the employee. This can either be a straight tax charge on the amount paid or the return of the expense amounts paid to the employees as "Benefits in Kind".
If the expense is a simple reimbursement, then there should be no tax charge arising on the employee - provided the information is correctly disclosed on a P11d and a Section 198 claim is made by the employee.
If the amount paid is a "general" expense amount not linked to specific reimbursements, there may be a BIK arising depending on whether the employee is allowed keep the whole amount or pays back any excess claims. If he does, then he would be taxed on the "excess" retained by him.
Apart from business related expenses, if ANYTHING is paid directly to an employee (usually wages)or on or behalf of an employee (usually a BIK) it will be subject to PAYE and NI. However, if the PAYE and NIC is correctly disclosed and paid over, this should ensure that the full cost of providing these amounts to the employee, including the related tax and NI, should be fully allowable costs as far as the business is concerned (subject to the specific exclusions mentioned above).
If the employees are not based in the UK then they CANNOT be subject to UK tax as they are not resident in the UK for tax purposes. That will not stop the amounts being paid to these individuals being tax deductable costs as far as the company is concerned.
Thanks for that.
So it looks as though the worst that could happen (on overclaimed foreign expenses) is that the UK company would have to pay a bit more CT as the overclaim (if it was picked up on an inspection) gets added back, but there's no way the UK Revenue could penalise (or cause to be penalised) the foreign employees.
Of course they may be (probably are) comitting offences in their own jurisdictions, but that's their problem.
So it looks as though the worst that could happen (on overclaimed foreign expenses) is that the UK company would have to pay a bit more CT as the overclaim (if it was picked up on an inspection) gets added back, but there's no way the UK Revenue could penalise (or cause to be penalised) the foreign employees.
Of course they may be (probably are) comitting offences in their own jurisdictions, but that's their problem.
Exactly. I am sure that they will have some obligation in their own countries to declare their worldwide earnings and pay the appropriate tax on those earnings - whether the earnings are straight wages or expense claims. However, for the moment anyway, there is no requirement for UK employers to have to notify foreign tax authorities of salaries and expenses they pay individuals in their employ from those countries.
Howver, you never know what lies around the corner.
Howver, you never know what lies around the corner.
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