If your business is involved in a long-term construction or installation project in the UK, and employees from your overseas head office or another group company are sent to work in the UK, there are important tax considerations you must not overlook.
We work with clients across a range of industries and project types, including:
Many of these projects start as short-term assignments, but as plans evolve and the scope of work increases, the duration may extend beyond 12 months. Once this happens, a UK Permanent Establishment (PE) arises under the terms of the applicable double tax treaty. When that occurs, the UK not only has taxing rights over the business profits of the PE — it also has taxing rights over the employment income of any individuals working on the UK project.
This includes workers carrying out project supervision, quality assurance, installation oversight, commissioning roles, or providing technical input. Whether your project is in construction, infrastructure, renewable energy, or advanced manufacturing — if your overseas staff are contributing on-site in the UK, there is a high likelihood that their income is taxable here.
To determine whether the UK has the right to tax an employee’s income, we look at the double tax treaty between the UK and the employee’s home country. Most treaties follow the OECD model and apply the same test:
The UK will have taxing rights unless all three of the following conditions are met:
Where an employee is working on a UK construction or installation project that gives rise to a PE, the third condition above will not be met, and the UK will always have taxing rights. Even if the employee is in the UK for fewer than 183 days, their income relating to UK workdays will be taxable in the UK.
We can help you review your project and assess whether a PE has arisen and advise on the implications for the employee income tax position.
In many cases, a project may not have been expected to last more than 12 months. As a result, the business may not have considered PE risks or the need to operate UK tax compliance for assignees.
We help clients:
If you’re realising now that you should have been meeting UK obligations for your project workers, we can help you get back on track.
Before considering tax, the first issue is ensuring the employee has the Right to Work in the UK. Since Brexit, EU workers need a visa — and you must confirm this with an immigration advisor. We can signpost trusted specialists if needed.
Depending on whether your business has a PAYE presence in the UK, there are two main approaches:
PAYE stands for Pay As You Earn. It’s the UK’s system for collecting income tax and National Insurance Contributions (NICs) from employees’ wages. Under PAYE, tax and NICs are deducted by the employer at source and paid to HMRC each month.
If the project does not involve a rented UK office, and no formal branch or office exists, you likely have no PAYE obligation. Instead, you can:
If there is a PAYE presence, or if your assignees are tax equalised, it may be better to operate a shadow payroll or even a Modified Payroll under EP Appendix 6.
Tax equalisation is an arrangement where the employee receives a guaranteed net income, and the employer covers the UK (and home country) tax liabilities. The employee pays a hypothetical tax amount, equivalent to what they would have paid had they remained in their home country. The employer pays the actual tax due in the UK and retains any tax refunds. More about tax equalisation ›
Modified payroll allows:
The UK has agreements with the EU and other countries ensuring that employees pay social security in only one country. For most EU employees, this means obtaining an A1 certificate from the home country.
We work closely with overseas HQs and UK-based project leaders to:
If the project is a UK PE, the UK can still tax income from day one, even if the employee is in the UK for less than 183 days.
Yes, unless they are a British or Irish citizen. We can refer you to an immigration specialist.
Yes, in some cases — particularly if you do not have a UK PAYE presence. We’ll advise based on your exact setup.
A system allowing employers to gross up income and report/pay taxes on behalf of tax-equalised employees in a streamlined way.
Yes. We can help fix historical non-compliance and agree a remediation plan with HMRC.
Senior Manager
Head of Direct Taxes
Senior Associate
Global Mobility, Personal Tax & VAT
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