WellTax Blog

National Insurance scheme only: when it applies

June 9, 2022

PAYE, short for Pay as You Earn, is the UK’s personal income tax collection system, where tax is taken from wages and paid to the UK government (HMRC) by the employer.

The classic scenario is that of a UK resident employer employing a UK resident employee, but in today’s world and the increasing use of remote working has led to more complex scenarios.In fact, the employer could be not UK resident,and vice versa the employee could not be Tax resident in the UK. As stated in HMRC’s note, PAYE20120, it is possible to use the National Insurance scheme, without having to pay Income Tax.

The National Insurance (NI) scheme is used when the only obligation is to pay primary and secondary National Insurance Contributions (NICs). The employer is responsible for creating the NI scheme and paying the NIC to HMRC. If the employee is liable for tax in the UK, this will be paid through the Self-Assessment Tax Return or through the DPGEN scheme (tax only).

Since May 2010, EC Regulation 883/2004 has introduced a change to the NIC responsibilities of employers based in other EC member states. Despite Brexit, the regulation is currently in force, but it cannot be ruled out that it may become a subject of discussion. Where an employee works in the UK for an employer based in another EC member state and a NI contribution liability arises, this liability will cover both primary and secondary contributions. In this case, the employer is required to set up (or have a UK agent set up) an NI Scheme to pay NI to HMRC.

When an employee is seconded by their employer in the UK to work abroad, they may continue to be subject to primary and secondary NI. However, under certain circumstances, the individual may be considered a non-resident for tax purposes. If the individual does not have PAYE, the employer is responsible for setting up and administering a NI scheme and paying the primary and secondary NIC to HMRC.

On the other hand, if a UK resident, employed by an employer in another EC member state, carries on business in both the UK and the other member state, the individual is subject to the primary NIC Class 1 in the UK. Under the EC Regulations, it is also possible for the employer to be liable for the secondary NIC even if the employee resides in another Member State. Again, the employer is responsible for setting up and administering a NI scheme and for paying the primary and secondary NIC to HMRC. Registration for the NI scheme can be submitted by post or by telephone.

Domenico Santomasi

Photo by PiggyBank on Unsplash

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