The UK Budget – impact for international employers
James K Smith · Posted on: January 3rd 2025 · read
The Autumn Budget generated significant conversation on the impact to UK public spending, the wider UK economy, and fundamentally how the taxpayer will react to the increased tax burden.
Much of the focus for international employees has been on the abolishment of the non-domiciled regime and the introduction of the new Foreign Income and Gains (FIG) regime. This is a major change and will no doubt add to the complexity in reporting for employees, but for international employers, the impact did not stop at this.
Key changes from the UK Autumn Budget 2024 that employers need to be aware of include:
- Increase in UK NI from both the 1.2% increase in rate for employers as well as the reduction from £9,100 to £5,000 in the secondary threshold. This will significantly impact on employers whose employees become subject to UK NI.
- National minimum wage (NMW) increase Whilst many assignees far exceed the UK minimum wage, this is not always the case and employers often need to increase pay for inbound employees. To supplement the higher cost of living in the UK, employers often cover accommodation and other related costs, however caution is needed as special rules apply on the value of accommodation for NMW.
- With an increased HMRC compliance budget to recruit 5000 new compliance officers to close the tax gap, employers can expect increased scrutiny in meeting their compliance obligations. Businesses have already seen an increase in BRR+ including increased scrutiny of international matters. This will only increase.
- Private school fees many parents look to ensure a consistent approach to education and private school fees are a benefit for inbound international employees. With VAT now payable – costs will increase for many employers providing this benefit to their employees. With increases to NI, if employers paying school fees on behalf of employees, there will be a double whammy in cost.
- Overseas workday relief (OWR) from April 2025 will be subject to an annual limit as the lower of 30% of the qualifying employment income or £300,000 per tax year. For inbound tax equalized employees, this will increase costs for employees with significant travel.
- Inheritance tax is often a missed point with international assignees, however, those coming to the UK will be brought into the scope of UK inheritance tax in a shorter period than before.
- Finally, the UK tax compliance burden will increase with the incoming FIG regime as individuals will need to quantify the amount of income and gains for which relief is being claimed; a change from the Remittance Basis where excluded income was simply not reported.
Things are not all doom and gloom for international employees:
- Individuals won’t be required to keep OWR income outside the UK, which will simplify reporting for those who did not follow the current “special mixed fund” rules.
- Simplification of s690 payroll adjustments from April 2025 should allow employers to inform HMRC of non-PAYE amounts but fundamentally proceed without waiting for HMRC confirmation.
- UK inheritance tax changes work both ways - employees who transferred from the UK who maintain non-UK tax residency for 10+ years may fall outside the scope of UK inheritance tax.
What next?
Whilst many of these costs can’t be avoided, employers should note that structuring an international move appropriately can help mitigate costs, for both the employer as well as employees. Employers should always engage their professional adviser when employees are crossing borders. This will help with costs, ensure employee satisfaction and provide reassurance should HMRC come knocking.
How we can help
Our global mobility experts understand the challenges that businesses and individuals face from the evolving international tax rules and regulations, and we can help guide you in navigating your compliance obligations.
Please get in touch with our Head of Global Mobility and the author of this article James K Smith, who will be happy to assist you with any queries.
Alternatively, you can contact your usual MHA adviser or your local MHA office with any queries.
