08 Apr 2025
Navigating the section 690 direction process
Section 690 direction update
New applications required for 2025/26 and future tax years
From 6 April 2025, HMRC has introduced a new process for globally mobile employees and treaty non-residents under the section 690 income tax (earnings and pensions) act 2003.
What’s new?
- Section 690 direction applications must now be made online, using the new online form
- Any employers with a section 690 direction already in place for 2025/26 onwards, will need to submit a new notification each tax year via the new online process. This is necessary if they wish to operate PAYE on a reduced amount of earnings.
Previous process:
- Employers and agents applied to HMRC for a section 690 direction. This allowed them to operate PAYE on a proportion of the qualifying employee’s income that corresponds to duties physically carried out in the UK
- This prevented the employee from being subject to withholding tax on their entire employment income across two jurisdictions. Section 690 directions can apply for up to three tax years at a time.
New process:
- From 6 April 2025, HMRC will discontinue this process. Instead, employers and agents must notify HMRC through an online form, specifying the portion of income to be treated as exempt from PAYE
- Once HMRC acknowledges receipt of the notification, employers may immediately operate PAYE on the reduced amount. This change aims to simplify compliance and reduce processing delays
- Any existing directions issued before 6 April 2025 will cease to be effective from this date, meaning new notifications must be submitted for the 2025/26 tax year
- In addition, new section 690 direction applications will need to be submitted for each tax year that the relevant employee is eligible. Applications must also be submitted if and when the employee’s circumstances change (e.g. if the proportion specified is no longer correct, or if their residence position changes)
Actions to take:
- You should start reviewing your current arrangements now to ensure a smooth transition
- If you have internationally mobile employees and wish to have a discussion around the new administrative process available, please get in touch.
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.
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