HMRC’s new NIC guidance on internationally mobile employees
A significant shift in HMRC’s stance.
On 18 September, HMRC updated their National Insurance Manual with guidance on the NIC treatment of earnings paid to internationally mobile employees (IMEs) (see NIM33650 onwards). An IME is a person who comes from overseas to work in the UK, leaves the UK to work overseas, or works simultaneously between the UK and overseas.
Following a lengthy review process, this update to the guidance instructs employers to calculate earnings on which Class 1 NICs are payable on an ‘apportionment’ basis, i.e. based on the portion of the payment that relates to the part of the ‘earnings period’ during which an IME was subject to NICs. This means that HMRC will not accept calculations based on an IME’s NICs liability position at the time of payment, i.e. an ‘all or nothing’ approach. HMRC state this approach applies to all earnings which have an earnings period: for example, cash bonuses, salary and securities income taxable as general earnings under ITEPA 2003 s 62.
Historical context: HMRC have been considering their approach on this topic for over 17 years. During this period, it has issued publications advocating both ‘all or nothing’ and ‘apportionment’ methods and has settled audits and disclosures accepting both methods of calculation. This has inevitably led to employers adopting different approaches over the years.
Retrospection: HMRC previously commented through the (now disbanded) Expatriate Tax & NICs Forum in 2020 that it did not anticipate asking employers to take retrospective actions on completion of its policy review where employers had consistently applied an approach.
Despite this, HMRC have stated in Agent Update 135 that employers should review their historical NICs treatment in respect of payment to IMEs, and where not aligned with HMRC’s published guidance, employers should re-source payments for NICs where appropriate and make payroll adjustments for the past six years (longer in Scotland) to rectify under and overpayments of NICs. This is both unexpected and disappointing, considering the lack of consistency in communications from HMRC on this topic over the years and the length of time for which HMRC’s position was under review.
What the guidance does not address: In the updated guidance, HMRC does not:
fully detail their technical basis for apportionment;
outline what payments they believe to have an ‘earnings period’ and what is the ‘earnings period’;
recognise that another country may also have the right to social security contributions on the same earnings, creating a dual change which is prohibited where a social security agreement exists between the UK and the other country;
provide any practical guidance to payroll operators on how to process earnings that are partially liable to NICs, or how to deal with NICs on payments made after a person has ceased to be liable to pay NICs;
outline why it considers that it has the right to ask employers to take retrospective action when net under and overpayments of NICs may cancel each other out.
Implications and actions for employers: The implications of this guidance is likely to be significant for employers who adopted an ‘all or nothing’ approach and have:
IMEs coming to/leaving the UK where there is no social security agreement in point and where a payment of earnings is paid after a 52-week NICs exemption or continuing liability period expires;
IMEs who return to their home location after the assignment has ended and receive a trailing payment; or
permanent transfers to/from the UK.
Employers will need to review their current practices, assess whether their previous methods were aligned with HMRC’s prior guidance, and execute corrective measures as needed. This may involve processing payroll adjustments, repaying or collecting employee NICs from individuals, and adopting an apportionment approach going forward. This will have associated implications on tax gross-ups, Apprenticeship Levy, Student Loan deductions and corporate tax filings. The financial burden of these adjustments coupled with the need to change payroll processing going forwards poses significant challenges for employments.
Conclusion: This change represents a significant shift that requires careful consideration and proactive measures from employers. The complexities introduced by the apportionment method necessitate a thorough understanding of the implications and a strategic approach to compliance as HMRC will, no doubt, pivot to questioning on this topic during Business Risk Reviews and Employer Compliance Reviews. n
Home >Articles > HMRC’s new NIC guidance on internationally mobile employees
HMRC’s new NIC guidance on internationally mobile employees
A significant shift in HMRC’s stance.
On 18 September, HMRC updated their National Insurance Manual with guidance on the NIC treatment of earnings paid to internationally mobile employees (IMEs) (see NIM33650 onwards). An IME is a person who comes from overseas to work in the UK, leaves the UK to work overseas, or works simultaneously between the UK and overseas.
Following a lengthy review process, this update to the guidance instructs employers to calculate earnings on which Class 1 NICs are payable on an ‘apportionment’ basis, i.e. based on the portion of the payment that relates to the part of the ‘earnings period’ during which an IME was subject to NICs. This means that HMRC will not accept calculations based on an IME’s NICs liability position at the time of payment, i.e. an ‘all or nothing’ approach. HMRC state this approach applies to all earnings which have an earnings period: for example, cash bonuses, salary and securities income taxable as general earnings under ITEPA 2003 s 62.
Historical context: HMRC have been considering their approach on this topic for over 17 years. During this period, it has issued publications advocating both ‘all or nothing’ and ‘apportionment’ methods and has settled audits and disclosures accepting both methods of calculation. This has inevitably led to employers adopting different approaches over the years.
Retrospection: HMRC previously commented through the (now disbanded) Expatriate Tax & NICs Forum in 2020 that it did not anticipate asking employers to take retrospective actions on completion of its policy review where employers had consistently applied an approach.
Despite this, HMRC have stated in Agent Update 135 that employers should review their historical NICs treatment in respect of payment to IMEs, and where not aligned with HMRC’s published guidance, employers should re-source payments for NICs where appropriate and make payroll adjustments for the past six years (longer in Scotland) to rectify under and overpayments of NICs. This is both unexpected and disappointing, considering the lack of consistency in communications from HMRC on this topic over the years and the length of time for which HMRC’s position was under review.
What the guidance does not address: In the updated guidance, HMRC does not:
fully detail their technical basis for apportionment;
outline what payments they believe to have an ‘earnings period’ and what is the ‘earnings period’;
recognise that another country may also have the right to social security contributions on the same earnings, creating a dual change which is prohibited where a social security agreement exists between the UK and the other country;
provide any practical guidance to payroll operators on how to process earnings that are partially liable to NICs, or how to deal with NICs on payments made after a person has ceased to be liable to pay NICs;
outline why it considers that it has the right to ask employers to take retrospective action when net under and overpayments of NICs may cancel each other out.
Implications and actions for employers: The implications of this guidance is likely to be significant for employers who adopted an ‘all or nothing’ approach and have:
IMEs coming to/leaving the UK where there is no social security agreement in point and where a payment of earnings is paid after a 52-week NICs exemption or continuing liability period expires;
IMEs who return to their home location after the assignment has ended and receive a trailing payment; or
permanent transfers to/from the UK.
Employers will need to review their current practices, assess whether their previous methods were aligned with HMRC’s prior guidance, and execute corrective measures as needed. This may involve processing payroll adjustments, repaying or collecting employee NICs from individuals, and adopting an apportionment approach going forward. This will have associated implications on tax gross-ups, Apprenticeship Levy, Student Loan deductions and corporate tax filings. The financial burden of these adjustments coupled with the need to change payroll processing going forwards poses significant challenges for employments.
Conclusion: This change represents a significant shift that requires careful consideration and proactive measures from employers. The complexities introduced by the apportionment method necessitate a thorough understanding of the implications and a strategic approach to compliance as HMRC will, no doubt, pivot to questioning on this topic during Business Risk Reviews and Employer Compliance Reviews. n
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