It is worth noting that the individual would remain UK resident in this circumstance as they would be present in the UK for more than 183 days in a tax year.
An employer that has a place of business in the UK, will be liable to operate both PAYE and National Insurance on the individual on full earnings on their worldwide income. The three weeks worked in the UK, will be taxed under UK income and the one week worked is only liable to German income tax on German performed duties under Article 14 of the UK/Germany DTA. The employer will be accountable to deduct both UK and German tax at the same time and will have to take German tax advice on making a claim in Germany under Article 14 to ensure that German income tax is so restricted.
If there is a ‘tax presence’ in the UK then there is a requirement to operate PAYE (this is not the same as a tax residency test for the company) See PAYE81610 for further guidance.
However, if no place of business in the UK exists, the individual will be responsible to pay their own tax, but employer will still need to operate and deduct UK National Insurance, primary and secondary National Insurance on all earnings, as if it were in the UK. Further guidance can be found NIM33120.
For Income Tax, the world is divided into two categories, each with its own rules:
- Double Taxation Agreements (DTAs)
- No agreement
Having determined where the individual is taxed, tax is operated either under PAYE or Self-Assessment.
If entered on a Self-Assessment return, earnings will be based on worldwide income and he/she can claim double tax relief on the tax already paid in Germany.
Another method of ensuring that the tax is paid is via the PAYE Direct Payment procedure. DPGEN scheme is a tax only scheme where the employee will be responsible for the deduction of their own Income Tax. Additional information can be found here PAYE20095. In order to claim relief at source, a Double Taxation Treaty Relief form will need to be completed. (Remember that a DPGEN is superfluous in view of base in the UK).
For National Insurance, the world is divided into three categories, each with its own rules:
- EU member states and Switzerland (see below)
- Reciprocal agreement (or Double Contributions Convention) countries
- Rest of the world
Earlier this month (9 September 2021) the UK and Switzerland signed a Convention on Social Security Coordination to ensure that both cross-border workers and employers will only be liable to pay social security contributions in one state. Read more here.
Normally, when working in two or more Member States, the country of residence takes priority if they carry out substantial activity there (25% of working time or earnings). Please see NIM33100. It appears that Germany has signed up to the detached workers article of the EU-UK social security protocol that applies post Brexit. (The EU regulations in NIM33100 ended after Brexit). This means that social security will be payable in the UK only, rather than the host country (Germany) too. Where the host country was not part of the above protocol (non-EU countries) the employer will have to apply for a certificate of continuing UK liability (CA9107) to provide to the foreign authorities.
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