Cross-border working has become routine, but many employers are still getting the payroll tax treatment wrong. Whether employees are travelling regularly between the UK and Ireland or working across multiple jurisdictions, incorrect PAYE treatment can lead to costly corrections, penalties and significant administrative work.

In his recent webinar, Cross Border Workers: Getting PAYE Tax Right, Tim Kelsey explained that as international working becomes more common, employers need to understand where payroll obligations arise, how double taxation agreements apply, and what practical steps can reduce compliance risks.

The Biggest Mistake: Taxing Based on the Employment Contract

One of the most common misunderstandings is assuming payroll should follow the location of the employer rather than where the employee is actually working.

In reality, many countries tax employment income based on where the duties are physically performed. That means an employee working overseas may create payroll obligations in that country, even if they remain employed by a UK company and continue to receive their salary through the UK payroll.

Getting this wrong can mean:

• operating PAYE where it should not apply
• failing to operate payroll taxes where they are required
• paying tax twice before relief is claimed
• facing interest and administrative costs when errors are discovered.

Residency Is Only Part of the Picture

An employee's tax residency matters, but it is only one part of the analysis.

UK-resident employees generally remain within the scope of UK PAYE unless HMRC issues an appropriate direction to reduce or remove UK withholding. At the same time, the country where the employee performs their work may also have taxing rights.

For employees who are not UK resident, UK tax can still apply to duties carried out in the UK, even if salary is paid overseas.

This is why employers should assess each assignment individually rather than relying on broad assumptions.

Double Taxation Agreements Help—but They Have Conditions

Double taxation agreements are designed to prevent the same employment income being taxed twice.

However, exemption from host-country tax is not automatic.

A typical treaty considers factors such as:

• how long the employee is present in the country
• who is regarded as the economic employer
• whether employment costs are borne by the local business.

Many organisations focus only on the number of days worked abroad and overlook the other conditions. Salary recharges between group companies, local management and commercial control can all affect whether treaty protection is available.

Business Visitors Need Monitoring

Employees travelling overseas for meetings, projects or client work are often treated as ordinary business visitors.

Even short visits can create payroll obligations if they are not monitored properly.

Employers should have a clear process for tracking:

• arrival and departure dates
• working days spent in each country
• the purpose of each visit
• which business ultimately benefits from the employee's work.

Without accurate records, it becomes difficult to demonstrate compliance if payroll obligations are questioned later.

HMRC Schemes Can Reduce Administration

Where conditions are met, HMRC offers several arrangements that can simplify PAYE administration for internationally mobile employees.

These include schemes designed for qualifying short-term business visitors, annual PAYE reporting in certain circumstances and modified PAYE arrangements where employees remain partly paid overseas.

Used correctly, these arrangements can reduce administrative burdens while helping employers remain compliant.

Employers should ensure they understand the qualifying conditions before relying on any of these options.

The UK-Ireland Relationship Requires Particular Attention

Movement between the UK and Ireland is common, particularly for businesses operating across both markets.

Although employees benefit from the Common Travel Area, payroll obligations do not disappear simply because travel is straightforward.

Employers should consider:

• where the employee is carrying out their duties
• whether the host business effectively directs the employee's work
• whether employment costs are recharged between entities
• local payroll registration requirements.

Cross-border working between the UK and Ireland often feels routine, but it should never be treated as administratively simple.

Small Decisions Can Create Large Problems

The webinar highlighted examples where businesses operated payroll only in the employee's home country despite staff regularly working abroad.

In some cases, correcting the position required:

• multiple years of payroll recalculations
• amended tax returns
• foreign tax credit claims
• tax equalisation arrangements
• additional benefit-in-kind considerations.

Much of this work could have been avoided through earlier identification of payroll obligations.

Practical Steps for Employers

If your organisation has internationally mobile employees, consider reviewing your current processes.

Ask yourself:

• Do you know where employees are physically working?
• Are overseas visitors being tracked consistently?
• Are payroll teams informed before international assignments begin?
• Have local payroll obligations been reviewed for each country involved?
• Are salary recharges creating unexpected tax consequences?

These questions are often far easier to answer before an assignment begins than after several years of international travel have taken place.

The Bottom Line

International working is now part of everyday business for many organisations.

Payroll compliance depends on more than where an employee is employed or where they are paid. It requires employers to understand where work is performed, how local tax rules apply and when payroll obligations transfer across borders.

Taking the time to review international working arrangements before employees travel can prevent significant compliance issues later.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.