Overseas employees

Overseas employees

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I have a UK limited company client, a 100% subsidiary of a US company.

They are sending a manger from the US to oversee the UK operation.

As I see it there are two options:

  1. Direct employment by UK company;
  2. Secondment from US company.

Option 2 is better from employee's point of view as they stay on US social security, maintain pension scheme entitlements etc, however, I am wondering if anyone can help regarding hospital treatment.

Under option 1 they and their wife will have free treatment no problem. Is this the case under option 2, or will they need insurance.

I understand once they have been here 12 months they will get free treatment whatever, and A&E treatment is always free?

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Euan's picture
By Euan MacLennan
04th Nov 2011 13:58

UK company must operate PAYE

Whether or not the manager is paid by the US head office or the UK branch, the UK branch must pay over UK PAYE tax and NIC on his salary.  This is set out in the Employer Guide CWG2 and in PAYE81620.  As the UK and USA have a reciprocal agreement, the UK branch is not required to deduct UK NICs if the manager has a certificate saying that he is entitled to pay social security contributions in the USA.

I cannot help you with "free" medical treatment in the UK.

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By George Attazder
04th Nov 2011 14:17

NHS Medical treatment is not based on NI contributions...

... you are entitled to treatment under the NHS if you are ordinarily resident in the UK.  Most of the case law used for tax purposes on ordinary residence actually comes from the laws appliacable to NHS treatment and eligibility for free/discounted education/adult education, which looks at ordinary residence.

If you are in the UK for a settled purpose, such as working here, you are ordinarily resident here and entitled to NHS care.

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By User deleted
04th Nov 2011 16:02

Thanks George and Euan

Since posting a colleague has pointed me at the totalization agreement with UK/US regarding NI/Social Security.

In case it is of use to anyone here is a link

http://www.ssa.gov/international/Agreement_Pamphlets/uk.html 

I was quite pleased until I saw the UK end is dealt with at Long Benton - lol.

So assuming exemption obtained, as I understand it, UK co operates a PAYE scheme and pays over tax, The US company puts it through their scheme with theri equivalent of an "NT" code and just pays social security over?

Presumably empoyers contributions apply - so it effectively operates as a table C situation?

http://www.hmrc.gov.uk/nic/work/emps-abroad.htm

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By aiwalters
06th Nov 2011 17:14

US Tax & SS

You didn't mention in the question how long the manager is expected to be in the UK; if the intention is that he should be here for more than 5 years, then he should be paying UK NI contributions, and not US SS from day 1.

Whilst for pension purposes, SS contributions can be added to NI contributions to reach a state pension, (theoretically, he could end up with state pensions from both the US and UK depending on how long he's here, and how long he was there), SS in the US much lower than in the UK (except for the self employed, when it is much higher), so he would presumably want to stay on the US system.

As far as I remember, those using the totalization agreement don't pay employer's NI either, although the exact source has slipped my mind this minute - so table X (no NI).

Re, the US company running an NT code - it doesn't exactly work like that; the US taxes its citizens wherever in the world they are. However, since taxes here are higher, he'll be able to set them off against foreign (UK) tax paid (anjd/or use the foreign earned income exclusion), so there shouldn't be a tax liability (unless he has other income). BUT, he'll still need to file tax returns every year, and report foreign bank accounts (if he has at least $10000 in them).

If all being said and done, he doesn't think he'll have a US tax liabilty, he should file form W-4 with the US employer to reduce witholdings to nil (based on the presumed foreign tax credits - he will not be able to claim exemption 'til next year.

 

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By User deleted
06th Nov 2011 17:26

Thanks ...

... the intention is three years.

I have a contact who specialises in US tax returns for employees working here (there are lots round here, they even have their own schools, 4 I know of in a 10 mile radius!) and I have forwarded her details to the manager - unfortunately she doesn't deal with the company side of it, I am awaiting a call from a Long Benton technical bod tomorrow!

I knew US tax was on worldwide income, but also know they get an overseas tax credit under the double tax treaty, I assumed it was coded out,  or whatever their equivalent is and then they sort out on their tax return, otherwise there is a serious cash flow problem if they pay tax twice and then reclaim the overpayment.

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By aiwalters
07th Nov 2011 13:21

Don't bother with Longbenton
You need to get a certificate of coverage from the SSA. This is very easy and can be done online. Just go to http://www.ssa.gov/coc and fill out the form. Once this is obtained, the employer will not need to deduct National Insurance.

This assumes that he will remain employed by the US company. If he will be employed by the UK subsidiary then you'll first need to file form 2032 with the IRS. http://www.ssa.gov/international/coc-docs/f2032.pdf

Regarding the US tax - there was a misunderstanding. I didn't say that the tax had to be paid twice and reclaimed, I said that the withholding level should be set so the withholding tax approximates ultimate US liability (bearing in mind the foreign tax credits etc) if any.

This is done through submitting a W-4 form to the employer. it is the equivalent of choosing your own tax code. If, bearing in mind other income, he thinks he'll have no ultimate US liability, he can set the tax code such that nothing will be witheld.

He will not (yet) be able to apply for "Exempt" (NT) , but will just take the equivalent of a 99999L tax code or similar. Not much practical difference.

I am a US Enrolled Agent based in Manchester and would be happy to help either on the personal tax side, or the company side. PM me or email info AT americantax DOT co DOT uk.

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