The Pole tax

The tax rules on employing migrant workers are complex to say the least. Employers may think they have tackled the worse of it once they have checked their work permits and training certificates. But tax issues are just as important as the legal hurdles, and an employer who neglects them may be in for a rude awakening.

To some extent the procedures for taking on migrant workers are the same as those for UK workers. A self-employed non-UK resident still needs to comply with the Construction Industry Scheme regulations, and may need assistance with registrations. If not self-employed, they will need to be taken on to your payroll. This can be time-consuming, as there are a series of registrations necessary to join the UK tax club.

All migrant workers need to be registered with HM Revenue & Customs and to have obtained a National Insurance number. Usually, the person needing the National Insurance number needs to apply for it in person at their local Job Centre Plus. All of this is essential to be paid legally. An employer would operate “emergency” tax and need to deduct NI from the worker’s wages and therefore it needs the NI number to ensure this is all allocated appropriately.

If the worker is only in the UK for a short period of time (60 days is the shortest cut-off period) then the rules are even more complex. The worker is likely to remain in their domestic tax system while paying UK taxes as well, which could lead to personal cash flow issues and the need to work with two systems.

If the worker is not in the UK for any length of time then it may be that they do not have a liability to tax. If a worker is in the UK for fewer than 183 days in a tax year, they are not tax resident. Employers beware, however: this does not take away their obligation to deduct PAYE tax and NI from the worker’s wages, as the PAYE regulations are written in a much more stringent manner.

There are also situations where the worker might be resident for tax purposes in both their home country and the UK, or at least have an obligation to file tax returns in both places. Quite commonly, where someone is in two jurisdictions then they would not have to pay twice the amount of tax, but the tax deducted in the UK would be available to set against any liability they may have in their home country. Unfortunately for the worker concerned, it is not possible to choose which is your “home” country – that is, the country with the lower rate of tax, as there are clauses in the tax treaties between the UK and many countries that set out where a person is tax-resident.

The worker staying fewer than 60 days is likely to remain in their domestic tax system while paying UK taxes as well, which could lead to personal cash flow issues

Finally, with regard to social security or NI contributions, there is an ability in most European jurisdictions to choose for about 12 months (possibly extendable for a further 12 months) to remain in the home jurisdiction for social security national contributions. This requires specific election to be filed with the relevant social security department – for the UK this is a particular office of HM Revenue & Customs in Newcastle upon Tyne – and can be quite a cumbersome process.

Obviously if the home country contributions are lower, then it may be worthwhile staying in that system. The UK employer however faces the complication of dealing with a foreign government department for the contributions, and that may prove to be challenging for some.

This is a complex matter and there are a number of variables which might determine whether someone is in or outside of the UK for tax purposes. There is therefore no substitute for obtaining professional advice before employing migrant workers.

With the construction boom not likely to slow down anytime soon and the ever-increasing availability of skilled migrant workers, employers are likely to become very familiar with these procedures over the next 12 months. Given past performance we can expect the Revenue to tighten procedures for migrant workers even further to clampdown on any perceived abuses.

Employers in the construction industry, like any other employers, can expect their fair share of extra administration to deal with on top of just getting the job done.