Executive Summary
A foreign company can employ staff in the UK without first incorporating a UK subsidiary. However, hiring someone who works in the UK can create PAYE, National Insurance, pension, employment-law and tax obligations.
Where the overseas employer has sufficient UK presence, it will normally need to:
- Register with HMRC as an employer;
- Operate PAYE payroll;
- Deduct Income Tax and National Insurance;
- Submit payroll information through Real Time Information;
- Provide payslips and year-end documents;
- Assess workplace pension duties; and
- complete right-to-work checks.
The employee may also create a UK permanent establishment for the foreign company, depending on their activities and authority.
| Obligation | What the foreign employer may need to do |
| PAYE registration | Register before the first payday |
| Payroll | Calculate salary, tax and National Insurance |
| HMRC reporting | Submit a Full Payment Submission |
| Pension | Assess and enrol eligible workers |
| Immigration | Complete right-to-work checks |
| Benefits | Payroll or report taxable benefits |
| Records | Maintain complete payroll documentation |
| Corporate tax | Review permanent-establishment risk |
Can a Foreign Company Employ Someone in the UK?
Yes. A foreign company does not always need to incorporate a UK subsidiary before employing a UK-based person.
However, the absence of a UK company does not automatically remove UK payroll obligations. The position depends on:
- Where the employee physically works;
- Whether the foreign company has a UK office, branch or other presence;
- Who manages and benefits from the employee’s work;
- Whether another UK company is involved;
- The employee’s residence and assignment arrangements; and
- Applicable social security agreements.
HMRC confirms that PAYE generally applies where an overseas employer has sufficient UK presence for the obligation to be enforced. Where there is no UK presence, the employer may voluntarily operate PAYE, or a direct-payment arrangement may be required in certain cases.
Professional advice: The PAYE position should be reviewed before the employee starts work, particularly where the company has no registered UK entity.
What Is PAYE?
Pay As You Earn, or PAYE, is the UK system through which employers deduct Income Tax and National Insurance from employees’ pay.
Payroll may need to account for:
- Basic salary;
- Bonuses and commissions;
- Directors’ remuneration;
- Taxable expenses;
- Benefits in kind;
- Statutory payments;
- Pension deductions;
- Student or postgraduate loan deductions; and
- Payments made when employment ends.
A foreign employer should not assume that paying salary from an overseas bank account means PAYE does not apply. HMRC may require a UK branch or other UK presence to operate PAYE even where the salary is paid by the overseas head office.
When Must a Foreign Employer Register for PAYE?
Where PAYE registration is required, the employer should register with HMRC before the first payday. HMRC does not normally allow registration too far in advance of the date employees will first be paid.
The employer will receive:
- An employer PAYE reference;
- An Accounts Office reference; and
- Access to HMRC’s PAYE online services.
Registration can take time, so it should form part of the employee onboarding process rather than being left until the first payroll date.
What if the PAYE reference has not arrived?
The employer should still calculate and run payroll correctly, store the payroll submission and send it to HMRC once the employer reference is available.
The employee should not be paid gross simply because the registration process is incomplete.
Real Time Information Reporting
Employers report payroll information electronically to HMRC through Real Time Information, commonly called RTI.
The principal submission is the Full Payment Submission, or FPS. It reports:
- Employee details;
- Gross pay;
- Tax deducted;
- National Insurance;
- Pension information;
- Statutory payments; and
- Other payroll deductions.
An FPS is generally required each time employees are paid and should normally be submitted on or before payday.
An Employer Payment Summary, or EPS, may also be needed where the employer:
- Reclaims statutory payments;
- Claims certain reliefs;
- Reports no employee payments for a period; or
- Makes other adjustments to the amount payable.
Income Tax and National Insurance
PAYE Income Tax and National Insurance are related but separate obligations.
An employee working in the UK will often be subject to UK Income Tax through payroll. National Insurance treatment can depend on:
- Where the employee normally works;
- Whether they have been temporarily assigned to the UK;
- The country from which they were sent;
- The length and nature of the assignment; and
- Whether a social security agreement applies.
Employees arriving from overseas may remain temporarily covered by another country’s social security system where the relevant conditions are met. Appropriate certificates or evidence should be obtained before UK National Insurance is excluded.
HMRC states that employees coming to work in the UK must normally be brought within PAYE, whether the UK work is temporary or permanent, although specific National Insurance exceptions may apply.
Workplace Pension Duties
Foreign employers with UK workers must also consider workplace pension automatic enrolment.
Pension duties begin when the first member of staff starts work. Even where no employee qualifies for automatic enrolment, the employer may still have assessment, communication and declaration duties.
The employer may need to:
- Choose a qualifying pension scheme;
- Assess employees each payroll period;
- Automatically enrol eligible employees;
- Make employer contributions;
- Communicate with staff;
- Process opt-in and opt-out requests; and
- Submit the required declaration to The Pensions Regulator.
Using a foreign pension arrangement does not automatically satisfy UK automatic-enrolment rules.
Right-to-Work Checks
Before employing someone in the UK, the employer must confirm that the individual has the legal right to perform the proposed work.
The check may be completed through:
- The Home Office online service;
- An approved identity service provider;
- Original documents, where permitted; or
- The Employer Checking Service in specific circumstances.
The employer should retain dated evidence of the check and complete follow-up checks where the employee has time-limited permission. The Home Office requires employers to conduct compliant checks before employment begins to establish protection against liability for illegal working.
Employment Status: Employee or Contractor?
Foreign companies sometimes describe UK workers as independent contractors to avoid payroll administration.
The contractual label is not decisive. HMRC and employment tribunals will consider the real working relationship, including:
- Who controls the work;
- Whether personal service is required;
- Whether substitution is genuine;
- How the individual is paid;
- Who bears financial risk;
- Whether equipment is provided; and
- Whether the worker is integrated into the business.
Employment status determines tax obligations and employment rights. HMRC’s CEST service can assist with tax-status assessments, but the answers must accurately reflect the real arrangement.
Misclassifying an employee as self-employed can result in retrospective PAYE, National Insurance, interest and penalties.
Expenses and Employee Benefits
Foreign employers must also review benefits provided to UK employees, including:
- Private medical insurance;
- Company cars;
- Living accommodation;
- Relocation support;
- Travel expenses;
- Share awards;
- Beneficial loans; and
- Employer-paid personal expenses.
Taxable benefits may need to be processed through payroll or reported to HMRC after the tax year. Where benefits are not payrolled, P11D and employer National Insurance reporting may be required.
A benefit should not be treated as tax-free merely because it is paid directly by the overseas head office.
Does Hiring UK Staff Create a Permanent Establishment?
Potentially.
A UK employee may create a permanent establishment, or PE, where they:
- Habitually negotiate or conclude contracts;
- Play the principal role in securing contracts;
- Manage a fixed UK office;
- Deliver the foreign company’s core services;
- Exercise significant commercial authority; or
- Operate from a location available to the foreign company.
A PE can make the foreign company liable to UK Corporation Tax on profits attributable to its UK activities.
The payroll and Corporation Tax questions are related but separate. Operating PAYE does not automatically prove that a PE exists, while the absence of PAYE registration does not prove that there is no taxable UK presence.
Practical Examples
Overseas software company hiring a UK salesperson
A foreign software company employs a salesperson who works permanently from London and negotiates customer contracts.
The company may need to:
- Register for PAYE;
- Operate UK payroll;
- enrol the employee into a pension scheme;
- Complete right-to-work checks; and
- Review whether the salesperson creates a dependent-agent PE.
Foreign company hiring a UK remote worker
An overseas company hires an employee who works from their UK home.
Even without a formal UK office, the company should review PAYE and National Insurance. It should also assess whether the home office is effectively being used as a fixed place of business for the foreign enterprise.
Temporary employee assignment to the UK
An overseas group sends an employee to the UK for a limited project.
PAYE may still apply. However, tax treaty relief, modified payroll arrangements or social security exemptions may be available depending on the assignment.
The employer should not delay the review until the employee’s tax return is due.
Common Mistakes
- Assuming no UK company means no PAYE.
- Registering only after the first employee has been paid.
- Paying UK employees through foreign payroll without UK reporting.
- Submitting the FPS after payday.
- Ignoring pension automatic-enrolment duties.
- Failing to complete right-to-work checks.
- Treating genuine employees as contractors.
- Ignoring taxable benefits paid overseas.
- Applying a National Insurance exemption without evidence.
- Failing to review permanent-establishment risk.
- Not reconciling payroll records to the accounts.
- Assuming an outsourced payroll provider assumes all legal responsibility.
Risks and Penalties
Payroll failures may result in:
- Retrospective Income Tax and National Insurance liabilities;
- Interest and late-payment penalties;
- RTI filing penalties;
- Pension enforcement;
- Immigration penalties;
- Employment claims;
- Taxable-benefit adjustments;
- Permanent-establishment assessments; and
- Problems during audits or investment due diligence.
The foreign employer remains responsible for payroll compliance even where an accountant, payroll bureau or Employer of Record performs administrative tasks.
Action Plan for Foreign Employers
- Confirm who the legal employer will be.
- Determine where the employee will physically work.
- Assess PAYE and National Insurance obligations.
- Review whether a UK branch or subsidiary is required.
- Register with HMRC before the first payday.
- Select compliant payroll software or a payroll provider.
- Complete right-to-work and employment-status checks.
- Establish a workplace pension process.
- Review benefits and expense policies.
- Assess permanent-establishment risk.
- Reconcile payroll to the accounting records.
- Maintain a UK payroll compliance calendar.
Frequently Asked Questions
Can a foreign company employ someone directly in the UK?
Yes, but UK payroll, pension, employment and tax obligations may arise even without a UK subsidiary.
Must an overseas employer register for PAYE?
Usually where it has sufficient UK presence and pays employees working in the UK. Special arrangements may apply where it has no UK presence.
Can the employee remain on foreign payroll?
They may remain on the foreign payroll administratively, but UK PAYE reporting and deductions may still be required.
Is PAYE required for a single employee?
Potentially yes. Having only one UK employee does not create a general exemption.
Must foreign employers provide a UK pension?
They must assess their UK workers under automatic-enrolment rules and provide a qualifying scheme where required.
Can the worker be treated as self-employed?
Only where the actual working arrangements support self-employed status. The contract description alone is insufficient.
Does a UK remote employee create a permanent establishment?
Possibly. It depends on the employee’s functions, authority, working location and the foreign company’s use of that location.
Who is responsible if payroll is outsourced?
The legal employer remains responsible for ensuring that payroll and reporting obligations are met.
Conclusion
Foreign businesses can hire employees in the UK without necessarily establishing a UK subsidiary, but they must carefully review PAYE, National Insurance, pension, immigration and employment obligations.
The key steps are to:
- Complete the analysis before employment starts;
- Register for PAYE where required;
- Report payroll accurately and on time;
- Assess pension and right-to-work duties;
- Review employee benefits; and
- Consider whether the employee creates a UK permanent establishment.
Professional UK Payroll Support
FKGB Accounting assists foreign employers with:
- PAYE registration;
- UK payroll processing;
- National Insurance reviews;
- Globally mobile employees;
- Workplace pension administration;
- Benefits and P11D reporting;
- Payroll reconciliations;
- Permanent-establishment assessments; and
- Ongoing accounting and tax compliance.
Book a consultation here
Email us: David.levy@fkgb.co.uk
Suggested Lead Magnets
- Foreign Employer UK Payroll Checklist
- UK Employee Onboarding Checklist
- Remote Worker Permanent Establishment Questionnaire
- UK PAYE and Pension Compliance Calendar
Important Notice
This article provides general information and does not constitute tax, legal, immigration or employment advice. The correct treatment depends on the employer’s UK presence, the employee’s duties, residence, immigration position and international assignment arrangements.
