PAYE81525 | PAYE operation: international employments: interaction between qualifying new residents and tax treaty non-residents

Section 690D ITEPA 2003

From 6 April 2026 the concessionary treatment that formerly allowed tax treaty non-residents to apply for a globally mobile employee (‘GME’) PAYE notification was put on a legislative footing in Section 690D ITEPA 2003. It is possible that an employee may work inside and outside the UK and be both a qualifying new resident and a tax treaty non-resident at the same time in the notifiable year.

If an appropriate person applied for a notification under section 690D by virtue of the employee’s likelihood of being a qualifying new resident, then the payments of employment income received by employees are ‘qualifying payments’. These payments would be subject to the 30% financial limit unless the individual met the Overseas Workday Relief (OWR) transitional provisions (see EIM43605). If the notification was made under section 690D by virtue of the likelihood of the employee’s being treaty non-resident, then the payments are ‘treaty affected payments’.

When an appropriate person submits a notification, the non-PAYE proportion of the payments specified both reflect the employee’s expected residence position and the overall PAYE position for the tax year. The notification, when acknowledged by HMRC, has effect and will apply to all payments in the tax year.

If an employee is likely to be both a qualifying new resident and a tax treaty non-resident, then an appropriate person can submit a notification under section 690D under either or both criteria. However, subsection 690D(5B) prevents the same amount from being included both in the foreign proportion of qualifying foreign employment income and in the treaty‑relieved proportion of income expected to be relieved under a double taxation agreement. When making a notification, the appropriate person needs to determine the most appropriate apportionment when reviewing the employee’s circumstances.

Example

Allison has arrived in the UK for the first time on 6 April 2026 on secondment from her employment in an overseas jurisdiction. By virtue of her residence position under the respective domestic legislative tests of each state, she expects to be both resident in that overseas state and in the UK. At the end of the year, the double taxation agreements will determine which country will have the primary taxing rights to her employment income and which country will need to provide tax relief. Allison therefore expects to be both a qualifying new resident and a treaty non-resident for the tax year 2026 to 2027. Her work pattern is expected to remain equal during the year with 50% of her duties performed in the UK and 50% in her home state.

While Allison meets the criteria as both a qualifying new resident and a treaty non-resident, her employer expects that 50% of her earnings will likely be treaty relieved and should not be subjected to PAYE. When also considering the financial limit of 30% applying to qualifying payments, the employer determines it is more suitable to make a notification under section 690D(2A) as a treaty non-resident.

Example continued

After 3 months, Allison’s employer requests that she spend a much higher proportion of her time in the UK, accounting for 90% of her working time. It is now likely that Allison would not meet the domestic residency tests in her home state and therefore will not be considered resident in two states. The notice given under S690D has ceased to be a reasonable estimate of the overall proportion of the amount of all treaty affected payments which are likely to be relieved by virtue of the tax treaty arrangements.

Allison expects to remain a UK resident and a qualifying new resident for the tax year, and her employer must submit a new notification for amounts to be specified as non-PAYE income on this basis. Although the notification under section 690D as a treaty non-resident will not have any immediate practical effect (because the payments being made are no longer ‘treaty‑relieved payments’), it remains a valid notice. This is because it was submitted to reflect the employee’s expected full‑year working pattern and would become effective again if circumstances changed and the employee was once more likely to be treaty non‑resident.

Section 690D(5B) prevents a notification under section 690D(2) from applying to amounts have already been reflected in a notification under section 690D(2A). The employer must contact HMRC and cancel the original section 690D(2A) notification prior to making a notification under section 690D(2) and operating PAYE on an alternative amount.

The appropriate person may then submit a notification under s690D(2) specifying that the non-PAYE proportion of qualifying payments is expected to be 10%.

At the end of the tax year the employee will need to file a Self-Assessment tax return