What a UK Payroll Engine Should Do for Globally Mobile Employees

Remote and hybrid work has made cross-border employment routine. An employee based in Germany working for a UK entity, a US executive making regular business trips to a London office, a UK-employed engineer seconded to a Dutch subsidiary — none of these fit the standard domestic payroll model yet none are exceptions any more. They are the ordinary operating conditions of many global organisations.

The payroll obligations they create are specific and, in some cases, time-sensitive. UK PAYE can apply from the first day an overseas employee works in the UK, with no minimum threshold. National Insurance liability can persist when an employee moves abroad or cease when a certificate exempts them from UK contributions. Tax codes need to reflect an employee's actual residence position, not just their employment contract. The correct treatment for each of these scenarios depends on information (residence status, treaty eligibility, certificate dates, visit-day counts) often held outside the payroll system and changes over time.

This post focuses on four areas where the payroll engine itself needs to behave differently — not upstream decisions about structure or policy, but calculation-level handling that changes per employee and per period: NT tax codes, Appendix 4 Short-Term Business Visitor (STBV) agreements, foreign tax credits, and dual National Insurance liabilities. 

No Tax codes

The NT (No Tax) code is HMRC's instruction to deduct no income tax from an employee's pay. It arises in two situations for internationally mobile workers and should produce different engine behaviour.

Where an employee is non-UK resident and performs no duties in the UK, HMRC allows the employer to apply code NT without prior agreement. No PAYE is withheld and no FPS needs to be submitted unless circumstances change. The engine should treat this as a valid standing configuration.

Where an employee becomes non-resident but remains on UK payroll, an NT code may be issued by HMRC following the relevant notification or application process. A Form P85 submission is one common route when an individual leaves the UK, but employers can also apply directly for an NT code for employees being sent to work abroad. Either way, the engine shouldn't treat NT as self-certifiable: it should withhold PAYE on the normal basis until HMRC's instruction arrives, then apply it without triggering emergency code logic or PAYE re-validation that would apply to other unusual codes.

In both cases, the engine must continue to calculate and deduct NIC independently of the tax code unless a separate NIC exemption also applies. NT and NIC exemption are two distinct configurations, and the engine should not treat one as implying the other.

Furthermore, if an employee is working wholly abroad under an NT code but remains on a UK contract, the payroll engine must still handle their Benefits in Kind correctly. Company benefits, such as medical insurance or a company car, may remain subject to Class 1A Employer NICs (or even Class 1 NICs if provided via certain overseas shadow payroll mechanisms). The payroll engine must process these benefit values for NIC purposes without accidentally generating a UK PAYE tax charge against an active NT code.

Appendix 4 Short-Term Business Visitor (STBV)

When an employee from an overseas parent, subsidiary, or associated company works in the UK, PAYE must operate from day one. There is no de minimis limit. For organisations with internationally mobile workforces, this creates a practical problem: running a monthly UK payroll for an employee spending three days in London for meetings is disproportionate, and doing it correctly requires knowing about the visit before it happens.

HMRC's Appendix 4 agreement exists to manage this. It is a formal concession that lets qualifying employers defer or disregard PAYE obligations for overseas staff visiting the UK. The conditions for an employee to qualify generally require them to be resident in a country with which the UK has a double tax treaty containing an Income from Employment article, and to stay for 183 days or fewer in any 12-month period. Importantly, if the employee spends 60 days or more in the UK, the UK host company must not act as their 'economic employer' (meaning the UK entity cannot bear the risks and costs of their work).  The UK has over 130 such treaties in force, and HMRC maintains the current list at Tax treaties - GOV.UK.

Where the agreement is in place, the employer reports qualifying visitors to HMRC annually rather than running a monthly payroll. The annual STBV report must be submitted by 31 May after the end of the tax year. The level of detail required per employee depends on the number of days spent in the UK.

The payroll engine should maintain a separate processing pathway for STBV employees entirely outside the standard monthly payroll cycle: no payslip, no FPS, but receive accurate day-count tracking per visitor and generate annual reports with the correct detail for each day-band.

The engine must also enforce 2 exclusions. Visitors from non-treaty countries are not eligible for Appendix 4 but may qualify for Appendix 8 instead. Appendix 8 is designed for short-term visitors from overseas employers where UK PAYE would otherwise apply, but treaty relief is unavailable. Unlike Appendix 4, it does not remove the underlying UK PAYE obligation. Instead, it provides an agreed administrative process that allows the employer to report and settle the PAYE liability annually rather than operating payroll deductions each time the employee visits the UK.

To qualify, the arrangement generally requires that:

• the employee is employed by an overseas employer and is temporarily carrying out duties in the UK;
• the employee is not eligible for treaty-based exemption from UK PAYE;
• the employee has no UK National Insurance liability;
• the employee's UK workdays fall within HMRC's permitted limit for the arrangement (currently 60 UK workdays in the relevant tax year); and
• the employer has obtained HMRC approval to operate the Appendix 8 arrangement.

Non-resident directors of UK companies are generally excluded from Appendix 4 and Appendix 8 because directors are treated as office holders rather than ordinary employees. Their UK tax treatment must be considered separately, including any applicable treaty provisions.

Finally, when an international employee falls outside of STBV rules or treaty relief entirely, the UK engine must be capable of running a Shadow Payroll via an Appendix 6 Modified PAYE arrangement. In these scenarios, the employee is paid locally in their home country, but the UK engine must calculate and pay UK PAYE and/or NIC on a proportion of their global earnings. The critical requirement for the payroll engine here is to process the gross taxable pay and deduct the statutory liabilities but suppress the net pay element so that a physical UK bank payment is not generated, preventing the employee from being paid twice.

Foreign tax credits

Where an employee is taxed on the same earnings in both the UK and another country, the UK typically gives credit for the foreign tax paid either under the terms of a double tax treaty, or, if no treaty applies, through unilateral UK relief.

In most cases, the payroll engine should not attempt to calculate or apply this relief itself. Foreign tax credit relief is commonly claimed through Self Assessment: the employer continues withholding PAYE at the normal rate, and the employee reclaims any excess via their tax return. The employer's payroll obligation is unchanged.

There is one narrower case where the engine does need to act. Where an employer is required to deduct foreign tax as well as UK PAYE from the same payments (typically because an employee is working abroad but remains on UK payroll), HMRC can authorise the employer to net the foreign tax against the UK tax due, directly through payroll. This is known as an Appendix 5 (Net of Foreign Tax Credit Relief) arrangement. It requires prior HMRC authorisation for the specific employer and employees named in it, and it typically runs on a non-cumulative (Week 1/Month 1) basis rather than the employee's normal cumulative code. The engine's job here is narrow but exact: reduce the UK tax due by the foreign tax withheld, without letting the offset exceed the UK tax liability itself, and report both the reduced UK figure and the foreign tax amount correctly on the FPS. Appendix 5 doesn't change the employee's NIC position though; NIC is still calculated on the normal basis, independently of the tax adjustment.

A separate and more common scenario is the globally mobile employee (GME) PAYE notification. This applies where an employee splits their time between UK and overseas duties and only part of their income should be treated as PAYE income — for example, a non-resident employee, someone in a split tax year, or a qualifying new resident claiming Overseas Workday Relief. This process was overhauled from 6 April 2025 (it was previously known as a Section 690 direction). Under the old rules, the employer applied to HMRC and had to wait for HMRC to issue a formal direction, often a wait of six months or more, before adjusting PAYE. Under the current rules, the employer or their agent submits an online notification specifying the proportion of the employee's income that isn't PAYE income, and can start applying that percentage to payroll as soon as HMRC acknowledges receipt, without waiting for HMRC to review or approve it. HMRC can still challenge the figure later. Notifications must be resubmitted every tax year and any direction issued before 6 April 2025 is no longer valid. From the 2026/27 tax year, the proportion of income that can be excluded on the notification for Overseas Workday Relief is capped at a maximum of 30%. (While the overall relief is capped at the lower of 30% or £300,000, that monetary limit is sorted out on the employee's Self Assessment return, not through the employer's payroll). Employees covered by a GME PAYE notification must file a Self Assessment return for that year.

For the engine, this means treating the notified percentage as an employer-asserted input tied to a specific acknowledgment date, not a code issued by HMRC after review.  It must apply that percentage to each relevant payment going forward, accommodate a revised percentage if the employer submits an updated notification mid-year, and ensure the figure doesn't exceed the 30% maximum where Overseas Workday Relief applies.

The broader principle holds across all three cases: foreign tax credit and split-duty arrangements are bespoke per employee, require HMRC involvement of some kind before the engine can deviate from full UK PAYE, and the engine needs to apply what's been authorised or notified correctly, not to calculate the relief itself.

Dual National Insurance liabilities

The default position is that anyone working in the UK pays UK National Insurance on the same rates, thresholds, and classes as UK nationals, regardless of nationality or immigration status. Exceptions exist, but they are not automatic; they depend on certificates issued under social security agreements between the UK and the employee's home country, each with specific validity periods and conditions.

For movements within the EU, EEA, and Switzerland, the A1 certificate is the operative document. Issued by the employee's home country social security authority, it confirms the worker remains liable to that country's scheme and is therefore exempt from UK NIC for the period specified. Without a valid A1, the engine must deduct UK NIC as normal. For many EU/EEA assignments, temporary postings may allow continuation in the home-country scheme for up to 24 months where the applicable coordination rules are satisfied. Post-Brexit, coordination runs through the UK-EU Trade and Cooperation Agreement rather than internal EU rules, but the A1 certificate remains the practical documentation.

For movements outside the EU/EEA, a Certificate of Coverage under a bilateral social security agreement performs the equivalent function. The UK has agreements with a range of non-EU countries including the US, Canada, Japan, New Zealand, and India. Countries without UK agreements include Australia, China, Singapore, the UAE, and most Gulf states, and workers assigned to these locations may face contributions in both countries with no treaty relief available.

For UK employees working abroad, NIC liability continues for the first 52 weeks of the posting where the employer has a UK place of business and the employee was ordinarily resident in the UK before leaving. After 52 weeks, if no agreement applies, mandatory Class 1 NIC ceases. Where a Certificate of Coverage has been issued under an agreement, UK NIC continues for the duration the certificate specifies.

What the engine should do: apply the correct NIC category based on the certificate in place, track certificate start and end dates with effective dating, and update the NIC category automatically when a certificate expires, resuming standard NIC deduction without waiting for a manual intervention. Relying on a payroll administrator to notice and update the category at the point of expiry is a compliance gap; the engine should surface the change proactively.

What Intermezzo handles at the API layer

The cross-border scenarios above share a structural characteristic: correct treatment depends on external data such as certificate dates, HMRC-issued codes, treaty eligibility, visit-day counts that change over time and must feed into the calculation without manual intervention at each pay run.

Intermezzo's UK payroll engine handles NT and other non-standard tax codes as valid standing variables rather than exceptions requiring periodic review. NIC exemptions are tracked separately from tax codes, with certificate validity dates held and NIC categories updated automatically at expiry. STBV employees are processed outside the standard monthly payroll cycle, with annual report generation built into the STBV pathway. GME PAYE notifications and Appendix 5 arrangements are applied exactly as configured without engine logic that would revert the employee to a standard, fully-taxed UK basis.

Intermezzo is an AI-powered global payroll API used by payroll software providers to power calculation, compliance, and filing across multiple countries. To discuss UK cross-border payroll handling or explore the API, book a demo with us below.

‍