By default, UK PAYE requires tax withholding on 100% of an employee’s worldwide employment income, if the employer has a tax presence in the UK. This can create distortions for inbound assignees who only work part of their time in the UK, and can even lead to temporary double taxation.
A Section 690 direction provides relief. It allows UK PAYE to be applied only to the proportion of an employee’s remuneration relating to UK workdays. This ensures payroll reporting is more accurate and aligned with the UK’s actual taxing rights.
Section 690 of the Income Tax (Earnings and Pensions) Act 2003 enables HMRC to authorise an employer to apply PAYE on a percentage of an employee’s remuneration that relates to duties physically carried out in the UK.
A Section 690 direction is particularly relevant where:
This approach helps avoid UK PAYE being applied to non-UK income where HMRC does not ultimately have taxing rights.
Section 690 is one way of easing the strict UK PAYE rules, but not the only option. Depending on your company’s structure and policies, alternatives include:
We help you identify the most efficient arrangement for your business and your assignees.
We work with overseas HR and finance teams to:
A Section 690 direction is HMRC’s approval for an employer to apply PAYE only to the portion of an employee’s salary relating to UK workdays. Without it, PAYE would normally apply to 100% of worldwide income if the employer has a UK presence.
The application is made by the employer with a UK tax presence. It is relevant where the employee works partly in the UK and partly overseas, for example:
Non-resident employees with some UK duties.
UK residents eligible for Overseas Workday Relief (OWR).
Treaty non-residents under a double taxation agreement.
HMRC can grant a direction for up to three tax years at a time, based on the estimated number of UK workdays. It should be applied for in advance.
Yes. PAYE under Section 690 is based on estimates. Each employee must file a UK Self Assessment tax return to reconcile their actual UK workdays with final tax due. Refunds or additional payments may arise.
Without a 690 direction, PAYE applies on the employee’s full worldwide salary through UK payroll if the employer has a UK presence — even if some of that income should only be taxable overseas. This can lead to excessive UK withholding and potential double taxation.
Other options include:
Appendix 6 Modified Payroll for tax equalised assignees, where the employer pays the UK tax.
Self Assessment only if the employer has no PAYE presence in the UK.
Shadow Payroll where PAYE applies fully to UK duties.
Senior Manager
Head of Direct Taxes
