Run UK payroll from overseas: employing in Britain with no UK entity

1 · No presence, no PAYE: the tax-presence test

The load-bearing rule for every foreign employer is that PAYE has a territorial limit. HMRC states it plainly: "One of the deciding factors on the operation of PAYE is whether the employer who makes the payment on account of wages or salary has a tax presence in the UK. The decision in Oceanic 56 TC 183 makes it clear that there is a territorial limitation to PAYE which restricts it to cases where the employer has a 'tax presence' here." So the first question is never "do we have UK employees?" — it is "do we have a UK tax presence?"

The line between the two is drawn in PAYE81610, and it is unusually generous to the offshore employer. HMRC regards "a branch or agency in the UK, or a UK representative office" as establishing a tax presence — but, in its own words, "we would not regard an overseas employer as having a tax presence in the UK simply because there are employees in the UK." The manual gives two worked examples that do not create a presence: an overseas concern whose "sales staff in the UK … simply travel around from their private residences to seek orders" (no presence at the private address), and an employer that "use[s] professional services in the UK, for example banking or legal services." What HMRC needs before it will say a presence exists is "something in the UK similar to a branch or agency, office or establishment … a UK address where we can contact the employer, send PAYE literature and, if necessary, enforce compliance."

The flip side matters just as much once you do have a presence. "Once we can show a tax presence, we can look to that presence to operate PAYE even if payments to employees in the UK are not made from the UK" — so a UK branch of a foreign group must operate PAYE "even if the UK employees … are paid by a part of the organisation outside the UK." And a branch or representative office is not a separate legal entity: per PAYE81605, if the arriving worker is the first and only employee, "You must set up a PAYE scheme … even if it is only in respect of the one new employee." HMRC is explicit that Self Assessment is not a substitute, because "A properly operated PAYE scheme also collects the employers NICs, which would not be collected by the SA procedure." Secondment adds a further trap: where an overseas concern seconds someone to an independent UK concern, "It is the duty of the UK concern to operate PAYE on employees seconded to it … regardless of whether they are paid by the UK concern, the overseas concern or partly by both" (PAYE81620).

2 · The employee route: DPNI and DCNI direct-payment schemes

When the foreign employer has no UK tax presence and no UK address from which earnings are paid, the machinery doesn't disappear — it moves onto the employee. This is the UK's structural equivalent of NZ's IR56 self-account: the worker, not the offshore employer, operates a scheme with HMRC.

There are two. A DPNI scheme — "PAYE Direct Payments" — "is appropriate where liability for PAYE Income Tax and primary National Insurance Contributions (NIC) exist. The employee is responsible for setting up a DPNI scheme and pays both PAYE Income Tax and National Insurance (NI) to HMRC under the one PAYE reference." Its named users, per PAYE20100, include employees of "A foreign employer who has no address in the United Kingdom from which earnings are paid" — which is precisely the offshore-employer case. A DCNI scheme is the NI-only variant: "used when direct payments of National Insurance (NI) only are to be made. Collection of the deductions is quarterly during the year", for "Employees who have no employer for PAYE purposes" and certain cross-border workers, where "any tax that is due is collected through Self-Assessment" (PAYE20090).

One qualification carries a hedge worth flagging. The DPNI page also states that "From May 2010, EC Regulation 883/2004 introduced a change … Where an employee works in the UK for an employer based in another EC member state and NI liability arises … the employer is responsible for setting up (or arranging for a UK agent to set up) an NI only scheme rather than a DPNI scheme." That is the closest thing UK payroll has to a statutory "processor" step — it pushes the setup duty back onto the employer or its UK agent. But the manual text still reads in pre-Brexit EC-Regulation terms; the operative social-security coordination position is now governed by the UK–EU Withdrawal Agreement and Trade and Cooperation Agreement, so confirm the current instrument before relying on the EC-Regulation framing.

3 · National Insurance: the host-employer rules

National Insurance runs on a different track from income-tax PAYE, and it can bite where PAYE does not. The person liable for employer NICs (and to deduct the employee's primary NICs) is the secondary contributor — usually the contractual employer. But NIM33710 says that where a secondary contributor is outside the UK and there is no treaty and "the employer does not meet the conditions as to residence or presence … there is usually someone in the UK who is treated as the employer for NICs purposes."

That "someone" is the host employer. Under the so-called host regulations, "Where there is a foreign contractual employer who does not meet the conditions as to residence or presence, the legislation treats as the secondary contributor, the person in the UK that the employee works for … because the 'host employer' in the United Kingdom (UK) is treated as the secondary contributor." The key conditions are that "the personal service of the person employed is made available to a host employer" and "for the purposes of the business of that host employer" (NIM33720). The practical upshot: NI can attach to a UK host even where income-tax PAYE does not attach to the foreign employer — the two questions are genuinely separate.

4 · Companies House: the separate place-of-business axis

The most common conflation is between "we employ someone in the UK" and "we must register at Companies House." They are legally independent. Companies House registration for an overseas company turns on a place of business, not on employment: per register as an overseas company, "You must register if you set up a place of business in the UK or if you usually carry out business from somewhere in the UK." And, decisively for the remote employer: "If you do not have a base in the UK — You do not need to register with Companies House. You may still need to register for Corporation Tax with HM Revenue and Customs (HMRC)."

Where the line is crossed, the mechanics are: register on form OS IN01, sent "to Companies House within 1 month of opening for business", with "a £124 registration fee." Note that "Some types of company cannot register as an overseas company in the UK, including partnerships and unincorporated bodies." The £124 fee is current at 10 July 2026 and is periodically uprated, so re-check it at the point of filing.

Put the three axes side by side and the asymmetry is complete. PAYE income tax attaches only on a UK tax presence; employer NIC can attach to a UK host even absent that; Companies House registration attaches on a UK place of business. An overseas employer can trip one without the others — employing a UK homeworker with no office trips none of the three, and the employee then self-accounts via DPNI/DCNI. That three-way independence is our reading of the sources rather than a single quoted proposition, so treat it as a map to check against your facts, not a substitute for advice.

5 · No liability transfer: the employer stays on the hook

Operators arriving from jurisdictions with an approved-intermediary regime often ask whether a UK bureau can simply become the liable party. It cannot. The UK has no statutory intermediary regime that transfers the employer's PAYE liability to an approved processor. The nearest statutory hooks are the DPNI/DCNI machinery that moves the operating duty onto the employee, and the express provision that a foreign employer "is responsible for setting up (or arranging for a UK agent to set up) an NI only scheme" (PAYE20100). Beyond those, payroll bureaux and agents act under ordinary HMRC agent authorisation, and the employer remains the liable party. HMRC's Employment Income Manual (EIM11810 and EIM11812), read with ITEPA 2003 s.687, confirms that engaging a payroll agent does not remove the PAYE obligation from the employer — the agent merely enables the machinery to discharge the employer's liability under the employer's own PAYE reference. There is no UK equivalent of a liability-transfer regime.

6 · Operationally: the remote setup, then the RTI and payment reality

Suppose you have concluded — with advice — that a UK PAYE scheme is required (a UK presence, a host arrangement, or a deliberate choice to run PAYE for the employee rather than leave them on DPNI). Almost all of it can be done remotely. You register as an employer with HMRC "when you start employing staff", "before the first payday to get your employer PAYE reference number", and "cannot register more than 2 months before you start paying people" (register as an employer). "Most limited companies can register online." Registering online auto-enrols you for PAYE Online: "HMRC will send you an activation code within 10 days by post. You must activate your account within 28 days of the date on the letter."

You will end up with two identifiers, both used constantly: the employer PAYE reference (the HMRC office number plus the reference after the slash, reported on every FPS and EPS) and the 13-character Accounts Office reference in the format "123PA00012345", which is "the payment reference" when you pay HMRC (what payroll information to report; the payment-reference use is on Pay employers' PAYE: Direct Debit). Detailed registration mechanics live in our registrations and employer IDs guide.

Once a scheme exists, you are on the Real Time Information treadmill. You "report your employee's pay, any payrolled benefits, and deductions in a Full Payment Submission (FPS) on or before their payday" — the core rule — and you "must enter the usual date that you pay your employees, even if you pay them earlier or later" (Reporting to HMRC: FPS). An Employer Payment Summary (EPS) covers recoveries, the Employment Allowance, the Apprenticeship Levy and no-payment months, and is due "by the 19th of the following tax month." New employers get a little slack: HMRC "will not charge a penalty if … you're a new employer and you sent your first FPS within 30 days of paying an employee", but it "will close your PAYE scheme if you're a new employer and you do not send a report to or pay HMRC in 120 days" (what happens if you don't report on time; Running payroll). The overseas-employer late-reporting reason code A ("You're an overseas employer paying an expat employee, or you pay them through a third party") is reported "By the 19th of the tax month after making the payment." The full lodgement cadence is in statutory lodgement (RTI).

Then you pay. "You must pay your PAYE bill to HM Revenue and Customs (HMRC) by … the 22nd of the next tax month if you pay monthly … If you pay by cheque through the post, it must reach HMRC by the 19th" (Pay employers' PAYE); small employers who "usually pay less than £1,500 per month" may be able to pay quarterly (Running payroll: Paying HMRC). From overseas the rails are the ordinary ones — "You can make a bank transfer using Faster Payments, CHAPS or Bacs", and HMRC publishes an overseas account for the purpose ("overseas IBAN GB62 BARC 2011 4770 2976 90, BIC BARCGB22") on its bank-details page. Late payment draws graduated penalties (1%–4% by number of defaults, plus 5% at six months and again at twelve, with daily interest) per HMRC's late-payment guidance. You will also need HMRC-recognised payroll software — recognition means only that "You can use it to report PAYE to us online"; "HMRC cannot recommend one product or service over another." Employer NICs, thresholds and auto-enrolment are covered in PAYE, NI & auto-enrolment; the wage-floor and payslip duties that bind an offshore employer exactly as they bind a local one are in minimum wage & wage rules and payslips & records; statutory sick, maternity and other leave pay in leave & statutory pay; and the full list of who regulates what in authorities.

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