From 6th April 2025 previous rules for non-domicile status have ended and replaced by a system based on tax residence.
Operating PAYE on a reduced percentage of an employee’s earnings
The process known as Section 690 has changed. This allowed an employer to apply for a direction to only operate PAYE on a proportion of income paid to a qualifying employee who worked both in and outside the UK.
From 6th April 2025 a new process allows an employer to send HM Revenue and Customs (HMRC) a notification specifying a proportion of income paid to a globally mobile or treaty non-resident employee which will be treated as not being PAYE income.
Employers and tax agents can notify HMRC using a new online notification form, and you can operate PAYE on the reduced amount of income as soon as HMRC acknowledge receipt of it.
Any HMRC directions that were issued before 6th April 2025 have ceased
This means that to operate PAYE on a reduced amount of an eligible employee’s income for the 2025 to 2026 tax year, they will need to submit a new notification. This will avoid any unintended consequences due to the interaction between the old and new regimes.
If you pay employment income to an employee on or after 6th April 2025, which relates to an earlier tax year in which:
- the employee was non-UK resident
- the employee was UK resident, but qualified for Overseas Workday Relief and had elected to be taxed on the remittance basis
- the year was a split year in relation to that employee
The payment is treated as PAYE income on the basis of best estimate that can be reasonably made on the amount of the payment likely to be PAYE income.
Overseas Workday Relief
As part of the changes, eligible individuals can claim relief on qualifying foreign income and gains. Subject to transitional provisions, employees eligible for foreign income and gains will also be eligible for relief on relevant employment income which relates to duties performed outside the UK. The relief is known as Overseas Workday Relief.
The main changes to be aware of:
- No longer need to pay any foreign employment income into a designated bank account overseas to benefit from Overseas Workday Relief— unless it relates to a tax year ending prior to 6th April 2025
- Overseas Workday Relief will now be available for the first 4 years of UK residence, or it appears likely that they will have done so
- the eligibility criteria for Overseas Workday Relief have changed, so consider whether the employee meets the revised eligibility criteria for the tax year
You may wish to make the employee aware that:
- foreign employment income will no longer need to be kept offshore to be eligible for Overseas Workday Relief — unless it relates to a tax year ending prior to 6th April 2025
- Overseas Workday Relief will be subject to an annual financial limit for each qualifying year — the application for the financial limit is applied when an employee files their Self Assessment tax return
Further guidance about the new Overseas Workday Relief regime is available.
Employees claiming Overseas Workday Relief must continue to keep records of their work overseas to correctly complete their Self Assessment tax return at the end of the year.
Employees and migrant workers may continue to be eligible for deductions on expenses incurred when travelling to perform duties in the UK, but with qualifying new residents permitted deductions for up to four years rather than the current five years. Non-resident individuals will continue to be eligible for deductions for five years from a qualifying arrival date.
PAYadvice.UK 22/4/2025