When employees are seconded internationally, standard UK payroll rules often do not reflect the realities of tax equalisation. For inbound assignees to the UK — and in some cases for UK-based staff seconded abroad — a Modified PAYE arrangement under EP Appendix 6 provides a practical solution.
An Appendix 6 Modified PAYE scheme allows employers to run a payroll for tax equalised employees based on estimated grossed-up earnings, rather than actual pay.
Appendix 6 is suitable where:
Typical cases include:
Operating a modified payroll can be resource-intensive. Employers must agree to:
Note: NICs (National Insurance) are not covered by Appendix 6 — they must be dealt with separately. The Apprenticeship Levy still applies.
Because of the cost and compliance burden, Appendix 6 may not always be the right approach. Alternatives include:
What is right for you will depend on your business structure, the presence (or absence) of a UK payroll obligation, and your global mobility policy.
At Türner & Co, we help you determine whether Appendix 6 is the right choice — and implement it if so.
An Appendix 6 arrangement allows employers to operate a modified PAYE scheme for tax equalised employees on assignment in the UK. PAYE is calculated on estimated grossed-up earnings (salary plus benefits), with the employer paying UK tax on the employee’s behalf. It is often described as a type of shadow payroll.
Appendix 6 applies where employees are tax equalised, meaning:
Their net salary is guaranteed.
The employer bears responsibility for UK tax.
They receive a mix of salary and benefits.
The employer commits to supporting the employee’s UK Self Assessment tax return.
No. Appendix 6 is optional. It can be the right solution for tax equalised employees, but it is not the only option. Alternatives include:
Adding assignees to a normal UK payroll and applying for a s690 direction to exempt non-UK workdays.
Reporting the UK liability solely through the employee’s UK Self Assessment tax return (possible if the employer has no PAYE presence in the UK).
Employers must:
Estimate annual taxable income and pay 1/12th of the tax liability each month (or quarterly for ≤5 employees).
Carry out in-year reviews for bonuses or changes.
File FPS returns with HMRC under notional payment codes.
Provide P60s and P11Ds showing estimated earnings.
Pay any additional liability due after year-end reconciliation.
NICs are handled separately — Appendix 6 only covers income tax.
Appendix 6 requires detailed calculations, frequent HMRC reporting, and annual reconciliations. Employers must commit to meeting all UK tax liabilities, regardless of circumstances. This level of administration and compliance often makes it more costly than alternatives.
A modified payroll under Appendix 6 is essentially a special form of shadow payroll approved by HMRC. It ensures UK PAYE compliance for assignees who are paid from overseas but taxable in the UK, while aligning with tax equalisation policies.
Senior Manager
Head of Direct Taxes
