How to Manage Tax and National Insurance for UK Employees Working Abroad

/Published:11th May 2026/inEmployees, Running a business, Tax
Accounting Wise - How to Manage Tax and National Insurance for UK Employees Working Abroad

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If you employ people who work outside the United Kingdom, whether on a short-term posting, a multi-year secondment, or a permanent overseas role, your obligations as a UK employer do not simply switch off at the border. Income tax, National Insurance, payroll reporting, and social security all need careful consideration from the moment an employee begins working abroad.

This post looks at what UK employers might need to know about managing tax and National Insurance for employees working overseas, including the significant changes to voluntary National Insurance contributions that came into force from 6 April 2026. Whether you are sending a member of staff abroad for the first time or reviewing an existing arrangement, understanding the rules will help you stay compliant, protect your employees’ benefit entitlements, and avoid costly mistakes.

Why This Matters for UK Employers

It is a common misconception that once an employee leaves the UK to work abroad, the employer’s UK tax and payroll obligations end. In most cases, that is not true. You may still need to operate PAYE, account for National Insurance contributions, and report earnings to HMRC, depending on where the employee is based, how long they will be there, and what social security agreements exist between the UK and the host country.

Getting this wrong can result in penalties for unpaid or incorrectly calculated tax, double taxation for the employee, gaps in their National Insurance record, and in some cases a permanent establishment risk for your business in the overseas country. Taking the right steps from the outset protects both the company and the individual.

Income Tax and PAYE: Your Obligations as an Employer

The Default Position: PAYE Continues

As a general rule, HMRC requires UK employers to continue calculating and deducting PAYE tax from all payments made to employees working abroad. This applies regardless of whether the employee is still a UK tax resident or has become non-resident. You should not simply stop operating PAYE without taking formal steps to vary or extinguish that obligation.

When an employee goes abroad, it is good practice to provide them with a letter confirming their employment status, earnings, and the nature of their overseas role. This can be useful when dealing with tax authorities in the destination country.

When an Employee Becomes Non-Resident

An employee’s UK tax residency is determined by the Statutory Residence Test (SRT), which is set out in Schedule 45 of the Finance Act 2013. Whether an individual remains UK-resident depends on the number of days they spend in the UK, their ties to the country, and the nature of their overseas work. You can find further detail on how the SRT works at GOV.UK.

If an employee becomes non-UK resident for tax purposes, their UK income tax liability generally applies only to income arising from duties physically performed in the UK. Income earned for duties performed wholly outside the UK is not subject to UK income tax. However, the employer still has to manage the payroll carefully, and in some cases must apply to HMRC to adjust the amount of pay subject to PAYE.

Where an employee is no longer tax-resident in the UK, they should submit form P85 to HMRC to notify them of their departure. Even if the employee continues working for a UK employer abroad and does not have a P45, HMRC recommends submitting a P85 so that the correct tax code can be issued. HMRC will then work out any tax refund owed for the year of departure.

The PAYE Notification (Formerly Section 690)

Where an employee splits their working time between the UK and abroad, it would be unfair to apply UK PAYE to their entire salary when a proportion of their earnings relates to duties performed overseas. To address this, employers can submit a PAYE notification to HMRC (this was previously known as a Section 690 direction). The process was digitised from 6 April 2025 and the notification can now be submitted online.

Once HMRC confirms receipt, the employer can operate PAYE only on the proportion of the employee’s pay that relates to UK duties. This prevents excessive UK tax withholding on earnings that are attributable to overseas work. The notification needs to be renewed each tax year and must be updated if the employee’s circumstances change.

From 6 April 2026, HMRC introduced an additional rule: where an employee is a qualifying new resident eligible for Overseas Workday Relief (OWR), the proportion of income excluded from PAYE via the notification cannot exceed 30% of the employee’s total pay. Full guidance on the PAYE notification process is available on GOV.UK.

The PAYE notification is relevant where the employee is:

  • Non-UK resident but spending some time working in the UK
  • UK resident and eligible for split year treatment, with overseas earnings in the overseas part of the year
  • Treated as non-resident for UK tax purposes under a Double Taxation Agreement (DTA)
  • A UK resident qualifying for Overseas Workday Relief

Employees covered by a PAYE notification must still file a UK Self Assessment tax return at the end of the tax year to reconcile their actual UK workdays against the estimate used in the notification.

Double Taxation Agreements

The UK has Double Taxation Agreements (DTAs) with more than 130 countries. These treaties determine which country has the primary right to tax an individual’s employment income and help to ensure that the same income is not taxed twice. Where a DTA is in place, it may be possible for an employee working abroad to claim treaty relief so that their overseas earnings are only taxed in the country where the work is performed.

You can search the full list of UK double taxation agreements at GOV.UK. The rules vary between treaties, so specific professional advice is usually necessary when an employee is based in a country with which the UK has a DTA.

National Insurance Contributions for Employees Working Abroad

The National Insurance position for overseas workers does not automatically follow the income tax treatment. You need to assess it separately, and the rules depend heavily on which country the employee is working in and whether a social security agreement is in place between the UK and that country.

The First 52 Weeks: Continuing UK Contributions

If an employee is ordinarily resident and employed in the UK before going abroad, both you and the employee will continue paying Class 1 National Insurance contributions for the first 52 weeks of the overseas posting, provided that:

  • The employee was living in Great Britain or Northern Ireland immediately before going abroad
  • The employee is going abroad temporarily
  • You, as the employer, have a place of business in Great Britain or Northern Ireland
  • The employee is not working in an EEA country, Switzerland, or a country with which the UK has a social security agreement that requires contributions to be paid there instead

After the initial 52-week period, the mandatory obligation to pay UK National Insurance generally falls away, and the question becomes whether the employee wishes to make voluntary contributions to protect their benefit entitlements, including their State Pension.

Countries with Social Security Agreements

The UK has social security agreements (sometimes called reciprocal agreements or double contribution conventions) with a number of countries, including the United States, Japan, South Korea, and several others. HMRC publishes the full list of social security agreement countries in the NI38 guidance.

Where a social security agreement is in place, employees posted to that country may be able to continue paying UK National Insurance rather than contributions in the host country. To take advantage of this, you must apply to HMRC for a certificate of continuing liability using form CA9107. This certificate is evidence that no social security contributions are due in the overseas country for the duration it covers. Without it, your employee may find themselves subject to double contributions.

For employees going to work in an EU country, Iceland, Liechtenstein, Norway, or Switzerland, there are separate coordination rules under the UK-EU Trade and Cooperation Agreement and the relevant withdrawal agreements. These rules are more complex and professional advice is recommended.

Countries Without Social Security Agreements

Where no agreement is in place, the employee may be required to pay social security contributions in the host country as well as continuing to pay UK National Insurance for the first 52 weeks. After the 52-week period, there is no compulsory UK National Insurance liability, but the employee may choose to pay voluntary contributions to maintain their UK record.

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Voluntary National Insurance Contributions Abroad: Major Changes from April 2026

This is an area where significant changes are now in force for the 2026 to 2027 tax year, and employers with staff working abroad need to act accordingly.

What Has Changed

Prior to 6 April 2026, employees working or living abroad could maintain their UK National Insurance record by paying voluntary Class 2 contributions, which were significantly cheaper than Class 3. The annual cost of voluntary Class 2 was around £180, making them an accessible way for overseas workers to protect their State Pension entitlement.

From 6 April 2026, voluntary Class 2 National Insurance contributions for periods abroad have been abolished. From the 2026 to 2027 tax year onwards, only Class 3 contributions are available for time spent working or living abroad. Class 3 contributions are considerably more expensive: businesses or employers choosing to pay Class 3 contributions on behalf of employees working overseas will face an additional cost of approximately £767 per year compared to the previous Class 2 rate.

New Eligibility Criteria for Voluntary Class 3 Contributions

The eligibility rules for paying voluntary Class 3 contributions for periods abroad have also been tightened significantly. To make a new application for voluntary Class 3 contributions for time abroad from the 2026 to 2027 tax year onwards, an individual must meet at least one of the following conditions:

  • They have lived in the UK continuously for a period of at least 10 years at any time before the period for which contributions are to be paid
  • They have paid at least 10 years of qualifying National Insurance contributions before the period abroad
  • They paid Class 1 contributions for the first 52 weeks of their employment abroad
  • They paid Class 1 or 2 contributions while working abroad under a social security agreement

This is a substantial tightening of the rules. Previously, only three years of continuous UK residency or three years of paid National Insurance contributions were required. The new 10-year threshold means that some employees who go abroad earlier in their careers will no longer be eligible to pay voluntary contributions, potentially leaving them unable to build sufficient qualifying years for the full State Pension.

Transitional Arrangements

HMRC has introduced transitional rules to give existing contributors time to adapt. Those who were already paying voluntary Class 2 contributions for periods abroad before 6 April 2026 can continue paying Class 3 contributions under the old three-year criteria, provided they apply before 5 April 2027. HMRC is writing to existing Class 2 contributors in July 2026 to advise them of their options. It is important that employees ensure their postal address held by HMRC is up to date so they receive this correspondence.

Existing Class 3 contributors from abroad can continue paying under their existing arrangements without needing to reapply or meet the new 10-year criteria.

How Employees Apply

To apply to pay voluntary National Insurance contributions while abroad, employees use form CF83, which is now available online via GOV.UK. Employers who wish to pay voluntary contributions on behalf of employees working overseas should note that such payments are likely to be treated as a taxable benefit in the host country, and local tax advice should be sought.

Practical Steps for Employers: A Compliance Checklist

When a UK employee is going to work abroad, the following actions should be considered as a matter of course:

  • Identify the destination country and check whether the UK has a Double Taxation Agreement and a social security agreement with that country.
  • Determine the employee’s residence status under the Statutory Residence Test. This will govern their UK income tax liability and help you understand your PAYE obligations.
  • Continue operating PAYE for the duration of the posting unless you have obtained formal clearance from HMRC to stop or reduce deductions.
  • Apply for a certificate of continuing liability (CA9107) if the destination country has a social security agreement with the UK and you want the employee to remain in the UK National Insurance system.
  • Submit a PAYE notification online if the employee splits their duties between the UK and overseas and you want to restrict PAYE to UK earnings only.
  • Advise employees to submit form P85 to HMRC when they leave the UK to work abroad, to ensure the correct tax code is issued and any refunds are processed promptly.
  • Advise employees on the voluntary National Insurance changes from April 2026, including the abolition of Class 2 contributions for periods abroad and the tightened eligibility criteria for Class 3.
  • Formalise the arrangement in writing via a remote working agreement or contract amendment that sets out the duration, responsibilities, and each party’s obligations regarding tax compliance costs.
  • Check for permanent establishment risk: in some countries, an employee working for a UK company from a home office can inadvertently create a local corporate tax liability for the UK business. Specialist advice should be obtained before any long-term overseas arrangement is approved.
  • Review your insurance policies to confirm that employees working overseas are covered under existing employer liability and health and safety arrangements.

Tax Treatment for Employees: A Brief Overview

While this guide focuses primarily on employer obligations, it is worth understanding the key tax considerations that employees working abroad will face, since as their employer you will often be the first point of contact when questions arise.

UK Tax Residency and the Statutory Residence Test

Whether an employee remains UK-resident for tax purposes while working abroad depends on the SRT. Factors include the number of days spent in the UK, whether the employee has a home in the UK, and whether they work full-time overseas. An employee working full-time abroad can generally visit the UK for up to 90 days in a tax year without triggering UK tax residency, provided no more than 30 of those days involve performing UK work duties.

Non-Resident Employees and UK Income Tax

An employee who is confirmed as non-UK resident will only pay UK income tax on income arising from duties performed in the UK. Income from overseas duties is not subject to UK tax. If the employee remains on UK payroll but is non-resident, the employer should work with HMRC to ensure the correct tax code is applied and that PAYE is not deducted on earnings attributable to overseas duties.

Employees Who Remain UK Resident

Some employees working abroad for shorter periods, or who retain sufficient UK ties, will remain UK-resident throughout their overseas posting. In these cases, they remain liable to UK income tax on their worldwide earnings. However, if the UK has a DTA with the host country, the treaty rules will determine which country has the primary right to tax, and relief can usually be claimed to avoid double taxation. These employees may also be eligible for Overseas Workday Relief in certain circumstances.

Final Thoughts on Managing Tax and National Insurance for UK Employees Working Abroad

Managing tax and National Insurance for UK employees working abroad involves a layered set of obligations that require careful planning before the posting begins, not after. As an employer, you remain responsible for operating PAYE correctly, managing National Insurance contributions for at least the first 52 weeks, and ensuring that any formal arrangements with HMRC, such as a PAYE notification or a certificate of continuing liability, are in place and up to date.

The changes that took effect from 6 April 2026 have substantially altered the voluntary National Insurance landscape for overseas workers. The abolition of Class 2 contributions for periods abroad and the tightening of eligibility for Class 3 are important developments that employers should communicate clearly to any employees they are posting overseas. Employees who have historically relied on inexpensive Class 2 contributions to build their State Pension entitlement will need to reassess their position.

Given the complexity of the rules and the overlap between UK tax law, social security legislation, and the laws of the host country, it is always advisable to take professional advice before finalising any overseas working arrangement. If you have employees working abroad and want to make sure your payroll and tax obligations are correctly managed, speak to one of our accountants at Accounting Wise.

Need help managing payroll and tax compliance for employees working overseas? Accounting Wise supports UK businesses with practical, plain-English advice on PAYE, National Insurance, and international payroll obligations.

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Tax and National Insurance for UK Employees Working Abroad FAQ

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Yes, as a default position. You must continue operating PAYE on all payments made to employees abroad unless HMRC has confirmed through a formal process that no UK tax is due. If the employee is non-resident and all duties are performed outside the UK, you can work with HMRC to have a no-tax (NT) code issued, but this requires formal notification and confirmation from HMRC first.

A Double Taxation Agreement covers income tax, preventing an employee’s earnings from being taxed twice in two different countries. A social security agreement is a separate arrangement that covers National Insurance and social security contributions, determining which country’s social security system the employee pays into. The UK can have one without the other with a given country, and in some cases has both.

In most cases, yes. If the employee was ordinarily working in the UK before the posting, both you and the employee will generally continue paying Class 1 National Insurance for the first 52 weeks abroad. If the destination country has a social security agreement with the UK, you should apply for a certificate of continuing liability to confirm the position and avoid any liability in the host country.

Yes, but only Class 3 contributions are now available for periods from the 2026 to 2027 tax year onwards. The cost is significantly higher than the former Class 2 rate, and the employee must meet the new eligibility criteria (10 years of UK residency or 10 qualifying years of contributions) unless transitional rules apply. Any such payments made by the employer should be reviewed for tax implications in the host country.

A certificate of continuing liability is issued by HMRC and confirms that a UK employee temporarily working in a social security agreement country will continue to pay UK National Insurance rather than social security contributions in the host country. It is applied for using form CA9107. Without it, the employee may be required to pay contributions in both countries, resulting in double liability.

Potentially, yes. If an employee stops paying National Insurance contributions while abroad and does not make voluntary contributions, gaps will appear in their National Insurance record. They need 35 qualifying years to receive the full new State Pension and a minimum of 10 qualifying years to receive any State Pension at all. The changes from April 2026 make it more expensive and, for some employees, less accessible to fill those gaps voluntarily while working overseas.

PAYE (Pay As You Earn) – The UK system used by employers to deduct income tax and National Insurance contributions from employees' wages before they are paid.
Statutory Residence Test (SRT) – The legal framework used by HMRC to determine whether an individual is UK-resident for tax purposes in a given tax year.
Double Taxation Agreement (DTA) – A treaty between the UK and another country that determines which country has the right to tax an individual's income, preventing the same earnings from being taxed twice.
Social Security Agreement – A reciprocal arrangement between the UK and another country that determines which country's National Insurance or social security system an employee pays into.
Certificate of Continuing Liability – A document issued by HMRC (using form CA9107) confirming that a UK employee working abroad remains liable to pay UK National Insurance rather than contributions in the host country.
Class 1 National Insurance – Compulsory contributions paid by both employees and employers on earnings above the relevant threshold, typically deducted through payroll.
Class 3 National Insurance – Voluntary contributions an individual can pay to fill gaps in their National Insurance record and protect their entitlement to the UK State Pension.
Voluntary National Insurance Contributions – Optional payments made to HMRC to fill gaps in a National Insurance record, particularly relevant for employees working abroad who are no longer paying compulsory contributions.
CF83 – The HMRC form used to apply to pay voluntary National Insurance contributions for periods spent working or living abroad. Now available online via GOV.UK.
PAYE Notification – A notification submitted by an employer to HMRC (formerly known as a Section 690 direction) confirming that PAYE will be operated only on the proportion of an employee's pay relating to UK duties.
Overseas Workday Relief (OWR) – A tax relief available to qualifying new UK residents that allows a proportion of their employment income to be exempt from UK tax where it relates to duties performed outside the UK.
P85 – An HMRC form completed by an employee leaving the UK to work abroad, used to notify HMRC of their departure and establish the correct tax treatment.
Non-Resident – An individual who does not meet the conditions of the Statutory Residence Test for a given tax year and is therefore only liable to UK income tax on income arising from UK duties.
Split Year Treatment – A provision that allows a tax year to be divided into a UK resident part and an overseas part where an individual moves abroad or returns to the UK mid-year.
Permanent Establishment – A taxable presence in an overseas country, which can arise unintentionally when an employee works from that country on behalf of a UK business, potentially creating a local corporation tax liability.
NT Tax Code – A PAYE tax code issued by HMRC meaning no tax should be deducted, used where a non-resident employee performs all their duties outside the UK and has no UK income tax liability.

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