Welcome changes to the Section 690 direction process

Recent announcements in the Budget detailed some promising changes to the way the application process currently works to obtain a Section 690 direction.

What is the Section 690 direction?

For employers dealing with employees who work both in and outside the UK, a Section 690 direction can make life a lot easier. Its purpose is to provide a relaxation to the strict application of PAYE, generally applicable where the employer (or host employer) has a tax presence in the UK and the employee has at least one substantive UK workday. Essentially, the direction provides the employer with authorisation to limit the application of PAYE to the proportion of qualifying employee’s employment income that will relate to work duties that are physically performed in the UK. The result is that the employee avoids the potential application of withholding tax on 100% of their employment income in two jurisdictions.

Applying in advance

Section 690 directions should be applied for in advance as they are prospective and can apply for up to three future tax years at a time. Essentially, the employee and employer must determine how many UK workdays the employee is likely to undertake. The Section 690 direction is based on that estimation and once agreed by HMRC, then UK PAYE tax will only apply to the UK workdays.  The employee must submit a UK tax return to reconcile their UK tax position at the end of the relevant tax year(s). This is important as PAYE withholdings under the Section 690 direction are simply estimates. A tax refund may be due if the employee had fewer UK workdays than expected or a payment required if they had more.

When is a Section 690 direction useful?

A Section 690 direction is useful for non UK resident employees doing some work in the UK, employees from countries with a double taxation treaty with the UK who aren’t taxed on their worldwide income here (i.e. treaty non residents), and UK residents who qualify for overseas workday relief.

Current Section 690 direction rules and potential changes

Under current rules, to get a Section 690 direction, the employer must submit an application to HMRC. Once approved, it stays in effect for the specified tax years unless the employee’s work pattern changes significantly.

However, due to difficulties arising for employers due to long delays from HMRC in approving Section 690 directions, draft legislation 690A has indicated that from April 2025, HMRC approval may no longer be required for the PAYE treatment of the Section 690 to apply and an auto acknowledgement from HMRC (on submission of the application) is all that is required. Essentially, a process now, check later approach.  This comprises part of the Governments plans to reform the taxation of non-UK individuals, alongside the abolition of domicile and other key changes. Click on this article to find out more about the end of the remittance basis for non-doms. 

It is worth noting that the rules for national insurance are different and require independent consideration.

If you have internationally mobile employees and wish to have a discussion around the available administrative easements available, please get in touch with us.