Legislation – Finance Act 2026
Schedule 4PAYE for treaty non-residents etc
Part 1Treaty non-residents
Introduction
1
ITEPA 2003 is amended as follows.
Notifications in respect of treaty non-resident employees
2
(1)
Section 690D (employer notification for qualifying new residents) is amended as follows.
(2)
At the end of the heading insert “or treaty non-residents”
.
(3)
In subsection (1)—
(a)
in paragraph (a), for “qualifying”, in the second place it occurs, substitute “notifiable”
;
(b)
in paragraph (b), for “qualifying” substitute “notifiable”
.
(4)
“(1A)
This section also applies in relation to an employee if—
(a)
the employee is or is likely to be a treaty non-resident at any time in a tax year (“the notifiable year”), and
(b)
the employee works or is likely to work outside the UK during the notifiable year.”
(5)
In subsection (2)—
(a)
in the opening words—
(i)
for “The” substitute “If this section applies in relation to the employee by virtue of subsection (1), the”
;
(ii)
for “qualifying” substitute “notifiable”
;
(6)
“(2A)
If this section applies in relation to the employee by virtue of subsection (1A), the appropriate person may give a notice to an officer of Revenue and Customs at any time during the notifiable year—
(a)
that the employer is proposing to treat the treaty relieved proportion of any treaty affected payment made by the employer to the employee as not being PAYE income of the employee for the purposes of PAYE regulations, and
(7)
“(c)
a “treaty affected payment” means a payment of, or on account of, an amount of employment income of the employee a proportion in respect of which UK tax is likely to be relieved under double taxation arrangements as a result of the employee being treaty non-resident in the notifiable year;
(d)
the “treaty relieved proportion” is the best estimate that can reasonably be made of the overall proportion of the amount of all treaty affected payments made by the employer to the employee in respect of which UK tax is likely to be relieved under double taxation arrangements.”
(8)
In subsection (4), after “qualifying payment” insert “or treaty affected payment (as applicable)”
.
(9)
“(5A)
Subsection (5B) applies for the purposes of determining the proportion to be specified in a notice or notices under this section in circumstances where, if the notice or notices were to be given and acknowledged by an officer of Revenue and Customs, a notice given under both subsection (2) and subsection (2A) would have effect in relation to the employee and the notifiable year.
(5B)
The proportion specified in the notice or notices must produce the result that no amount is reflected in both—
(a)
the foreign proportion specified in the notice under subsection (2) as an amount that is likely to be qualifying foreign employment income, and
(b)
the treaty relieved proportion specified in the notice under subsection (2A) as an amount in respect of which UK tax is likely to be relieved under double taxation arrangements.”
(10)
(a)
after “qualifying new residents” insert “or treaty non-residents”
;
(b)
for “qualifying year” substitute “notifiable year”
.
(11)
In subsection (6)—
(a)
in paragraph (a), for “qualifying” substitute “notifiable”
;
(b)
“(b)
a subsequent notice—
(i)
is given by the appropriate person in relation to the employee and the notifiable year under the same subsection, and
(ii)
is acknowledged by an officer of Revenue and Customs,
(c)
the appropriate person notifies (in writing or otherwise) an officer of Revenue and Customs that the notice is to cease to have effect, or”;
(c)
in paragraph (c)(i), for “qualifying” substitute “notifiable”
.
(12)
In subsection (9)—
(a)
omit the “and” at the end of paragraph (a);
(b)
“(c)
an individual is “treaty non-resident” at any time if, at that time, the individual falls to be regarded as resident in a territory outside the UK for the purposes of double relief arrangements having effect at the time, and
(d)
“double taxation arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010.”
Consequential amendments
3
In section 690B (direction by HMRC in relation to internationally mobile employees), in subsection (6), in paragraph (b)(i)—
(a)
after “new resident”, in the first place it occurs, insert “or treaty non-resident”
;
(b)
after “mobile tax year” insert “or treaty non-resident at any time in the mobile tax year”
.
4
(1)
Section 690E (direction by HMRC in relation to qualifying new residents) is amended as follows.
(2)
At the end of the heading insert “or treaty non-residents”
.
(3)
(4)
In subsections (2)(a) and (4)(b), after “qualifying payment” insert “or treaty affected payment (as applicable)”
.
Part 2Other amendments of ITEPA 2003
5
ITEPA 2003 is amended as follows.
6
(1)
Section 690 (internationally mobile employees) is amended as follows.
(2)
In subsection (3), after “entire” insert “uncertain”
.
(3)
In subsection (4), in the opening words—
(a)
after “a payment” insert “or part of a payment”
;
(b)
for “to the extent that” substitute “in respect of which”
.
(4)
In subsection (4)(a), after “the income” insert “relating to that payment or part”
.
7
(1)
Section 690A (employer notification for internationally mobile employees) is amended as follows.
(2)
In subsection (2)(a) for “a proportion of any uncertain payment” substitute “the non-PAYE proportion of any mobile payment”
.
(3)
“(2A)
For the purposes of this section and section 690B—
(a)
“mobile payment” means a payment of, or on account of, an amount of employment income of the employee in respect of which—
(i)
the extent to which the income is PAYE income depends or may depend on the extent to which the employee’s duties during the mobile tax year are performed in the United Kingdom, and
(ii)
the reason it depends or may depend on that extent is connected to the employee being or having been internationally mobile in the mobile tax year;
(b)
“non-PAYE proportion” means the best estimate that can reasonably be made of the overall proportion of the amount of all mobile payments made by the employer to the employee that would not be PAYE income if the employee were non-UK resident for the mobile tax year or the mobile tax year were a split year as respects the employee (as appropriate).”
(4)
In subsection (3), for “uncertain” substitute “mobile”
.
(5)
“(4)
But subsection (3) does not apply to a mobile payment—
(a)
to the extent that section 690D(4) or 690E(4) (qualifying payments or treaty affected payments) also applies to the payment, or
(b)
if the payment is made after the end of the mobile tax year, other than to the extent the payment is also an uncertain payment.”
(6)
In subsection (6)—
(a)
“(aa)
as a result of a change in the employee’s circumstances, the proportion specified in the notice ceases to be a reasonable estimate of the non-PAYE proportion,”;
(b)
in paragraph (b) after “this section” insert “in relation to the employee and the mobile tax year”
;
(c)
“(c)
section 690D (qualifying new resident or treaty non-resident employee) begins to apply in relation to the employee and the mobile tax year and the mobile tax year is not likely to be a split year as respects the employee.”
8
(1)
In section 690D (employer notification for qualifying new residents)—
(a)
(i)
“—
(i)
the best estimate that can reasonably be made of the overall proportion of the amount of all qualifying payments made by the employer to the employee that is likely to be qualifying foreign employment income,”;
(ii)
“or
(ii)
if the best estimate mentioned in sub-paragraph (i) is greater than 30%, 30%.”;
(b)
“(aa)
as a result of a change in the employee’s circumstances, the proportion specified in the notice ceases to be a reasonable estimate of the overall proportion of the amount (as applicable) of—
(i)
all qualifying payments that is likely to be qualifying foreign employment income, or
(ii)
all treaty affected payments in respect of which UK tax is likely to be relieved under double taxation arrangements,”.
(2)
The amendment made by sub-paragraph (1)(a)(ii) does not apply to a notification relating to an employee and tax year 2026-27 or 2027-28 if section 41R of ITEPA 2003 (limit on relief) would not apply to a foreign employment relief claim made by the employee for that year, if that year was the qualifying year (see paragraph 7 of Schedule 8 to FA 2025 (limit on relief not to apply to certain foreign employment relief claims)).
9
(1)
In section 690B (direction by HMRC in relation to internationally mobile employees)—
(a)
in subsection (1), omit paragraph (b) and the “and” before it;
(b)
in subsection (2), in paragraph (a), for the words from “a proportion” to the end substitute “the non-PAYE proportion, or”
;
(c)
in subsection (2), in paragraph (b) for “such” substitute “uncertain”
;
(d)
in subsection (4), in paragraph (b) after “uncertain payment” insert “or mobile payment (as applicable)”
;
(e)
“(4A)
But a direction for determining the non-PAYE proportion does not apply in relation to a mobile payment—
(a)
to the extent that section 690D(4) or 690E(4) (qualifying payments or treaty affected payments) also applies to the payment, or
(b)
if the payment is made after the end of the mobile tax year, other than to the extent the payment is also an uncertain payment.”.
(2)
In section 690E (direction by HMRC in relation to qualifying new residents), in subsection (1), omit paragraph (b) and the “and” before it.
10
In section 690C (employees who were internationally mobile etc. before 2025-26), in subsection (2)(b) for “spilt” substitute “split”
.