Detached duty relief for seconded employees

If you are considering sending people to work in the UK, there are a number of things you need to consider.

As an employer in the UK, you have a number of financial obligations to your employees, including the deduction of income tax and employee national insurance contributions from their salary at source. You are also obliged to make additional employer national insurance contributions. The level of tax and national insurance contributions depends on the level of an employee's earnings. These deductions together with the employer national insurance contribution must be paid to HM Revenue and Customs (HMRC - UK tax authority) on a monthly basis.

Employment Law - what you need to do

Generally a Latin American person will need a work permit to be eligible to work in the UK. The Home Office issues all work permits. The exact permit requirements depends on many factors and you will need to take legal advice from an appropriately qualified professional which Kingston Smith can arrange for you. There should also be clear evidence that an European Economic Area resident is not available to fill this position. Please refer to the Home Office for further information.

Claim for detached duty allowances - reduce your tax burden

A company based in Latin America may wish to second employees to work in the UK either with a group company or a third party, such as a customer for example. Employees are normally seconded on their existing terms and conditions of employment, although additional terms (or a variation of existing terms) may be agreed for the duration of the secondment. It is possible for seconded employees to acquire UK employment rights whilst seconded to the UK.

The proposed salary of the foreign worker should not be below the prevailing minimum wage in the UK.

In the absence of any specific tax planning, employees seconded to work in the UK are liable to UK income tax on their salary at a rate of up to 40% (50% from April 2010). However, if a secondment package is structured correctly, UK income tax and national insurance contributions can be drastically reduced or in some cases eliminated entirely.

Where an employee is being seconded to the UK for less than 24 months, it is possible to agree with HMRC that the proportion of their salary spent on accommodation, food and sustenance, council tax, utility bills and travel to work from home can be paid to them free of tax. These tax free amounts together with the tax free allowance of £6,475 (2009/10) to which all individuals working in the UK are entitled, can significantly reduce liability to UK taxes.

Claim to limit your UK tax liability for work done outside the UK

Where an employee is seconded to the UK but spends some time working outside of the UK (e.g. in mainland Europe) then the proportion of the employee's salary attributable to days worked outside of the UK is not subject to tax in the UK, provided it is not received into a UK bank account (or remitted to the UK in some other way). Therefore, if an employee spends 3 months a year working in Europe then 25% of their salary could be treated as being exempt from UK taxes if it is paid into a bank account outside of the UK and other necessary steps are taken. The personal allowance of £6,475 (for 2009/10) however is lost if this exemption is claimed.

If you are considering seconding employees to the UK, are already seconding employees or would like to find out more, contact Paul Spindler, Partner, Kingston Smith LLP.