The NIC treatment of cash earnings paid to internationally mobile employees (IMEs)

This is a welcome clarification, but uncertainty remains on whether corrections are required for earlier years and how to deal with situations where earnings are subject to both UK NIC and foreign social security contributions.

Employers need to update their payroll processes to reflect this, identify impacted employees, and consider whether corrections need to be made to the NIC applied to previous payments of cash earnings.

Background

For many years expatriate practitioners and HMRC have debated how NIC applies to cash earnings paid to IMEs. This includes salary, bonuses and cash settled share awards.

This centred on which of the following two approaches applied:

• “All or nothing”
• “Apportionment” approach

Historically, accountancy firms and their clients applied the all or nothing approach, i.e. if the earnings were paid to the employee in an earnings period that they were subject to NIC, then NIC applied to the payment in full. Conversely, if the payment was made in an earnings period the employee was not liable to NIC, then NIC was not applied to the payment.

This approach was applied regardless of whether the earnings related to a period the employee was liable to NIC or not and was simple for employers to administer.

However, in HMRC’s June 2020 expatriate forum, they advised that their approach has always been that the apportionment applies, i.e. if the earnings relate to a period the employee was liable to NIC, this income will be liable to NIC regardless of when the earnings are paid.

Expatriate practitioners shared their concerns with HMRC on the impact for employers on correcting the NIC on payments made in previous years. HMRC advised that their technical team would review the position in advance of publishing guidance on this.

The period until 18 September 2025 has therefore created uncertainty for employers. HMRC’s recent guidance confirms that apportionment applies and brings an end to this uncertainty on HMRC’s finalised position.

Comparing the two approaches

Jane is employed by a UK company and is liable to UK NIC. On 1 October 2025 she moves to the UAE to work for the parent company of her UK employer for the foreseeable future.

She is paid a bonus on 31 March 2026 that was earned in the 2025 calendar year.

Under the apportionment method, 9/12^ths of this bonus is liable to UK NIC as it relates to a period she was liable to NIC.

Had the all or nothing approach been applied, NIC would not have been payable on the bonus as Jane was not liable to NIC at the date of payment 

Areas that require clarity from HMRC?

HMRC’s agent update 135 advises that where employers have applied the all or nothing approach in the 25/26 and the previous six tax years, they need to make corrections via payroll RTI adjustments and/or a disclosure. This may give rise to repayments and liabilities.

This places an administrative burden on employers and many larger employers are querying this with their HMRC customer compliance manager. The question here is whether there is scope to argue that the clarification is a change of practice and therefore no need to make corrections for previous periods.

We understand that HMRC will provide further guidance on this point in a forthcoming Employer Bulletin.

Separately, there will be situations where earnings will be subject to both NIC and foreign social security contributions because of apportionment and the application of social security contributions in another country.

Unlike income tax, there is no universal mechanism for relief from double social security contributions. Therefore, it is down to the discretion of the National Insurance Contributions Office and the other countries’ social security authorities to determine whether relief for double contributions will be available.

The US social security authorities often offer relief in these scenarios, but this is the exception rather than the norm and HMRC are yet to provide any guidance on how to deal with these situations.

Actions for employers

Employers should take the following action:-

•  Update their payroll processes to account for NIC on the apportionment approach and account for differences in NIC and income earnings sourcing periods, especially where the first 52-week rule applies.
• Consider the approach to take for bonuses paid in the 25/26 tax year to date and the previous six tax years.
• Refer to previous correspondence with HMRC and their expatriate forum guidance. Also, consult with advisers (and where applicable HMRC customer compliance managers) to determine whether to make corrections.
• Identify previous payments impacted and calculate liabilities and repayments.
• Dependent on the approach taken on bonuses paid to date in the 25/26 tax year and earlier tax years, contact your global employment adviser and agree an approach to:
  • Make corrections via RTI payroll adjustments and disclosures.
  • Advise impacted employees.
  • For tax equalised employees, amend UK and overseas Tax Returns, plus NIC settlement returns.
  • Consider the impact on corporate tax positions taken and make amendments where necessary.

Contact our Global employer solutions team for further support

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