When an employee works abroad for a long period, the UK employer has to answer three questions: where the employee is tax resident and which country can tax the pay, whether UK National Insurance continues or local social security takes over, and whether the employee’s presence could give the company a taxable permanent establishment, or even a second tax residence, in the other country. PAYE does not stop just because the work moves overseas.

Does the employee stay UK resident?

Residence is tested each tax year under the statutory residence test. A remote worker who keeps a UK home and spends a few months abroad will usually stay UK resident, and a UK resident is taxed on worldwide earnings. The country they work in may also tax the pay for days worked there, in which case relief for the foreign tax is given against the UK tax.

To become non resident through overseas work, the employee normally needs the third automatic overseas test: working full time overseas for the tax year with no significant break, spending fewer than 91 days in the UK, and doing more than three hours’ work in the UK on fewer than 31 days (RFIG20140). Someone who was UK resident in one of the previous three tax years is also non resident if they spend fewer than 16 days in the UK (RFIG20120). Once non resident, the employee is taxed in the UK only on earnings for duties performed in the UK (section 27 ITEPA 2003); see how non residents pay UK income tax.

What must the employer do about PAYE?

HMRC’s guidance on employees working abroad says you must continue to calculate and deduct PAYE income tax from all payments to employees working abroad. When the employee goes, give them a letter showing the date they went abroad and their pay and tax from the start of the tax year to that date. Employees who will spend most of their time abroad for a year or more can complete form P85, and HMRC will confirm the tax code to use. The overseas tax authority may also expect deductions, so HMRC tells employers to contact both the Employer Helpline and the overseas authority.

From 2025 to 2026, sections 690 to 690E ITEPA 2003 deal with internationally mobile employees, meaning employees who work both in and outside the UK in a year in which they are, or are likely to be, non resident or in a split year:

  • if the employer cannot tell how much of a payment is PAYE income because of the employee’s mobility, the whole payment is treated as PAYE income (section 690);
  • the employer can notify HMRC of its best estimate of the proportion that is not PAYE income, which takes effect once HMRC acknowledges it (section 690A), and HMRC can give its own direction (section 690B);
  • separate notifications cover qualifying new residents claiming overseas workday relief and employees who are non resident under a tax treaty (section 690D).

What happens to National Insurance?

National Insurance follows different rules from income tax. HMRC’s employer guidance sets out three situations:

  • EU, Gibraltar, Iceland, Liechtenstein, Norway or Switzerland. The employee usually pays social security in that country, unless they hold a certificate of coverage (PDA1) keeping them in UK National Insurance. A temporary posting of up to two years will usually qualify.
  • Other social security agreement countries, including Canada, India, Israel, Japan, South Korea, Turkey and the USA. Contributions usually go to that country, but a temporarily posted employee may stay in UK National Insurance with a certificate of coverage applied for on form CA9107.
  • Anywhere else. UK National Insurance continues for the first 52 weeks if the employer has a place of business in the UK, the employee is ordinarily resident in the UK and was living here immediately before starting work abroad.

Where the certificate keeps the employee in UK National Insurance, the employer’s contributions follow the employee’s. More detail is in National Insurance when working abroad.

Could the employee’s home create a permanent establishment?

A company is taxed in another country on its business profits if it has a permanent establishment there. UK law (section 1141 CTA 2010) mirrors the treaty definition: a fixed place of business through which the company’s business is wholly or partly carried on, or a person who habitually concludes contracts, or plays the principal role leading to contracts, for the company. Each country applies its own law and its treaty with the UK, but HMRC’s own guidance shows how the tests work:

  • A place of business only needs some space “at the disposal” of the business, and it makes no difference whether that use is exclusive or shared (INTM264420).
  • Permanence is the key test for mobile workers. HMRC’s examples treat a short, one off working holiday as not permanent, but a contract allowing an employee to spend a fixed three months a year working in another country as meeting the permanence test (INTM264435).
  • Activities that are only preparatory or auxiliary are excluded, but the decisive question is whether the activity forms an essential and significant part of the business as a whole (INTM264460).
  • Separately, an employee who negotiates and effectively concludes contracts abroad can create a dependent agent permanent establishment even without a fixed place.

If a permanent establishment exists, the profits attributable to it fall within the other country’s corporate tax.

Could the company itself become resident abroad?

A UK incorporated company is UK resident under the incorporation rule in section 14 CTA 2009. The risk is that a director making key decisions from abroad leads the other country to treat the company as resident there under its own law, for example by place of management, so that it becomes dual resident (INTM120100). The treaty tie breaker or the two tax authorities then decide, looking at factors such as the place of central management and control, the place of effective management, where employees are based and where the business is carried on (INTM120085).

Does a tax treaty protect the employee?

Treaties usually contain an employment income article (Article 15 or its equivalent) that leaves a short visit taxable only in the country of residence. HMRC’s guidance for short term business visitors coming to the UK applies the conditions in the reverse direction: presence of 183 days or less in any twelve month period (or in a tax year, under some treaties such as the one with Italy) and pay that is not ultimately borne by an employer or branch in the country visited (PAYE82000). Long remote working stays often fail the day count. Where an employee does rely on a treaty, the other country may ask for a certificate of UK residence.

A worked example

Illustration only. Leah works for a UK design company and asks to work from her partner’s home in an EU country from June 2026 to March 2027, keeping her London flat and coming back for about 40 days.

  • Residence: counting April and May 2026, she spends about 95 days in the UK in 2026 to 2027, so no automatic overseas test is met. With more than 90 days, someone resident in earlier years needs only two UK ties (RFIG20520). Her available London flat gives an accommodation tie and her full years in the UK give a 90 day tie, so she stays UK resident and taxable here on all her pay.
  • PAYE: the employer carries on deducting PAYE, and Leah claims credit for any tax the other country charges on her days worked there.
  • National Insurance: unless the employer obtains a certificate of coverage, she will usually be liable to that country’s social security instead.
  • Permanent establishment: a nine month arrangement working from a fixed home office, doing the company’s core design work, needs to be checked against that country’s rules.

What should be in a remote working policy?

  • A limit on days abroad and on the countries allowed, with approval before travel.
  • A record of UK and overseas days and workdays, which also serves the residence test.
  • No authority for the employee to negotiate or sign contracts while abroad.
  • A check on certificates of coverage before the employee leaves, not after.
  • A review of whether directors are taking board decisions from abroad.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.