UK Taxes Explained: What Global Employers Must Know Before Hiring in the UK

Key Takeaways

• PAYE registration is mandatory for all UK-based employees, regardless of salary levels or working arrangements
• Total employment costs include 15.05% employer NICs plus pension contributions and statutory benefits
• Overseas Workday Relief provides significant tax advantages for internationally mobile employees from April 2025
• Permanent establishment risks require careful structuring to avoid triggering UK corporation tax obligations
• EOR services offer the fastest, lowest-risk path to UK market entry without entity establishment

Introduction

The UK market offers tremendous growth potential, but complex tax obligations can derail expansion plans. Many global employers face unexpected costs and compliance issues by underestimating UK tax requirements.

Understanding PAYE, National Insurance Contributions, and corporate tax implications protects your business and optimises your expansion strategy. A single compliance misstep can trigger HMRC investigations, backdated payments, and reputational damage.

Eos Global Expansion is a boutique employment services provider specialising in helping businesses expand internationally without compliance complexity. With hands-on expertise across payroll, tax obligations, and employer of record services, Eos combines personalised service with deep local knowledge to deliver streamlined global hiring solutions.

This guide provides essential tax knowledge for confident UK hiring decisions. Eos helps businesses navigate these complexities through comprehensive payroll and compliance services that ensure full compliance while simplifying UK expansion.

Overview of Key UK Employer Tax Responsibilities (2025 to 2026)

Before diving into specific requirements, it’s essential to understand the full scope of UK employer tax obligations. The following table outlines the primary responsibilities you’ll face when hiring in the UK:

Sources: The above information is based on HMRC and UK government guidance. Business tax: Guidance and regulation, Rates and thresholds for employers 2025 to 2026

These obligations apply from day one of employment and require ongoing management throughout the tax year. Missing deadlines or incorrect calculations can trigger penalties starting at £100 per month for late PAYE submissions.

Do I Need to Register for PAYE as a Global Employer?

If you employ UK-based staff, PAYE registration with HMRC is mandatory—there are no exceptions. This applies whether you hire one employee or one hundred, and regardless of salary levels or working arrangements.

The PAYE system requires you to:

• Withhold income tax from employee salaries
• Deduct employee National Insurance contributions
• Pay the employer National Insurance contributions
• Submit monthly or quarterly returns to HMRC
• Provide annual P60 forms to employees

Additionally, you must enrol eligible employees into a UK workplace pension scheme. This includes employees aged 22 and over who earn more than £10,000 annually, with a minimum contribution of 3% from employers and 5% from employees.

Registration must be completed within 14 days of the first employee’s start date. The process involves obtaining a PAYE reference number and setting up Real Time Information (RTI) reporting, which transmits payroll data to HMRC with each pay run.

For businesses without a UK presence, this complexity often makes Employer of Record (EOR) services the most practical solution, as Eos handles all PAYE obligations on your behalf while you maintain operational control of your team.

What Are the Current UK Income Tax Rates for Employers to Consider?

Understanding UK income tax rates is crucial for accurate salary budgeting and payroll processing. For the 2025–2026 tax year, the structure is:

• Personal Allowance: £12,570 (tax-free) 
• Basic Rate: 20% on earnings from £12,571 to £37,700 
• Higher Rate: 40% on earnings from £37,701 to £125,140
• Additional Rate: 45% on earnings above £125,140

These rates apply to most UK employees, but regional variations exist. Scotland operates its own income tax rates while maintaining the same personal allowance, and Wales has limited tax-varying powers that may affect future rates.

For high earners, the personal allowance reduces by £1 for every £2 earned above £100,000, effectively creating a 60% tax rate on earnings between £100,000 and £125,140.

Employers must also consider:

• Emergency tax codes for new employees without P45 forms
• Tax code adjustments for benefits, expenses, or previous year under/overpayments
• Student loan deductions where applicable
• Court-ordered deductions such as attachment of earnings

Accurate tax calculations require sophisticated payroll software or professional payroll services. Many global employers find that partnering with specialists like Eos eliminates the risk of costly errors while ensuring employees receive accurate pay slips and tax documentation.

How Do National Insurance Contributions (NICs) Affect Employer Costs?

National Insurance Contributions represent a significant additional cost beyond base salaries. For 2025–2026, employer NICs are charged at 15.05% on employee earnings above £758 per month (£9,100 annually).

Unlike income tax, there’s no upper limit on employer NICs, making them a substantial ongoing cost for higher-paid employees. For example, an employee earning £50,000 annually generates approximately £6,154 in employer NICs alone.

Employee NICs are deducted from salaries at rates of:

• 12% on earnings between £12,570 and £50,270
• 2% on earnings above £50,270

These deductions are handled through PAYE, but employers must ensure accurate calculations and timely payments to HMRC.

Class 1A NICs also apply to most employee benefits at 15.05%, including company cars, private medical insurance, and accommodation benefits. These are calculated annually and paid by July 19th following the tax year end.

Understanding total employment costs is essential for accurate budgeting. A £50,000 salary actually costs employers approximately £56,154 when including NICs, before considering pension contributions, benefits, and other employment costs. For a comprehensive breakdown of all UK employment costs, read our detailed guide on how UK taxes impact hiring costs for employers.

Eos helps clients understand these true costs through detailed employment cost modeling and transparent pricing that includes all statutory obligations.

What Is Overseas Workday Relief (OWR) and Who Qualifies?

Overseas Workday Relief, effective from April 6, 2025, provides tax relief for UK-resident international employees who work partially abroad. For the latest updates on OWR implementation and other UK employment law changes, visit our employer updates section.

Eligibility Requirements:

• Employee must be a UK tax resident
• Must work partly outside the UK
• Work abroad must be for the same employer
• Relief applies only to non-UK workdays

Employer Obligations:

• Notify HMRC online at the start of each tax year
• Apply PAYE only to UK-related earnings
• Maintain detailed records of UK vs overseas workdays
• Ensure employees file Self-Assessment returns

Strategic Benefits:

• Reduces overall tax burden for international employees
• Supports recruitment of globally mobile talent
• Enables flexible working arrangements across borders
• Provides competitive advantage in talent acquisition

Implementing OWR requires careful planning and ongoing administration. Eos assists clients with OWR applications through our specialised Multi-Country Payroll & Accounting  services, maintains necessary records, and ensures compliance with both UK and international tax obligations.

Tax Responsibilities When Hiring Locally vs. Internationally

Your tax obligations vary significantly depending on where your employees are based and their working arrangements. Understanding these differences is crucial for compliant hiring strategies.

Hiring UK Citizens and Residents

When hiring UK-based employees, full PAYE and NIC obligations apply regardless of the employee’s citizenship. You must:

• Complete right-to-work checks under UK immigration law
• Operate PAYE for all UK-based earnings
• Provide statutory benefits including holiday pay and sick pay
• Ensure UK GDPR compliance when handling personal data
• Maintain employment records for at least three years

Eos streamlines this process through our UK payroll services by handling all local employment obligations while you focus on business operations. Our local expertise ensures compliance with evolving UK employment law while providing employees with the security of UK employment protection.

Hiring International Employees Relocating to the UK

International employees relocating to the UK become subject to UK tax once they establish tax residency. This typically occurs when they spend more than 183 days in the UK during a tax year, though complex statutory residence test rules may apply.

Key considerations include:

• Immediate PAYE obligations once UK tax residency is established
• Potential OWR eligibility if work continues across borders
• Visa and sponsorship requirements for non-UK citizens
• Double tax treaty benefits to prevent dual taxation

Managing internationally mobile employees requires expertise in both UK and international tax law. Eos provides comprehensive support for employee relocations, including visa and immigration assistance, tax planning, and ongoing compliance management.

For detailed guidance on the legal requirements and processes, see our comprehensive guide : Can A UK Company Hire A Foreign Employee?

Hiring Remote International Employees (Based Abroad)

Hiring employees who remain based abroad presents different challenges and opportunities:

Tax Advantages:

• No UK PAYE or NIC requirements
• No UK employment law obligations
• Potential cost savings on employment taxes

Compliance Risks:

• Corporation tax exposure if activities create a UK permanent establishment
• Employment law obligations in the employee’s home country
• Potential misclassification of employment status

Strategic Considerations:

• Ensure genuine independence from UK operations
• Maintain clear documentation of work arrangements
• Consider local employment law compliance requirements

Eos helps structure compliant international employment arrangements that avoid triggering UK tax obligations while ensuring proper treatment in the employee’s home jurisdiction.

What About Contractors? Do We Still Owe UK Taxes?

Engaging contractors instead of employees can reduce UK tax obligations, but proper classification is essential to avoid costly penalties and backdated payments.

Genuine Contractors:

• Are paid gross without PAYE/NIC deductions
• Invoice for services rather than receiving wages
• Control how, when, and where work is performed
• Bear financial risk for their work
• Are not integrated into your business structure

IR35 Considerations: For overseas employers without UK presence, IR35 off-payroll rules typically don’t apply. However, misclassification risks remain significant, as HMRC may reclassify contractors as employees retroactively.

Best Practices:

• Use written contracts clearly defining the relationship
• Ensure contractors have multiple clients
• Avoid providing equipment or office space
• Don’t integrate contractors into employee structures
• Document the commercial rationale for contractor arrangements

Avoid costly compliance errors by learning about common employer tax mistakes while expanding your team and how to prevent them.

Eos assists with contractor classification reviews through our comprehensive compliance services and helps establish compliant engagement structures that protect both your business and the contractor while meeting HMRC requirements.

Do I Have to Pay UK Corporation Tax When Hiring Locally?

UK corporation tax obligations depend on whether your business creates a UK permanent establishment (PE), not simply on hiring employees. Understanding PE rules is crucial for managing tax exposure.

Permanent Establishment Triggers:

• Fixed place of business in the UK (including employee home offices)
• UK agent habitually concluding contracts on your behalf
• Construction projects lasting more than 12 months
• Significant UK business activities conducted by employees

No PE = No UK Corporation Tax:

If you avoid creating a PE, you won’t be subject to UK corporation tax, regardless of UK employee numbers or salary levels.

If PE Exists:

• Must register for UK corporation tax within three months
• File annual corporation tax returns
• Pay tax on UK-attributed profits
• Maintain detailed records supporting profit attribution

Risk Mitigation:

• Use EOR services to avoid direct UK employment
• Limit UK employee decision-making authority
• Ensure employees don’t create binding contracts
• Maintain clear geographical separation of business functions

Eos helps clients structure their UK operations to minimise PE risks while maintaining operational flexibility. Our Employer of Record services provide a compliant solution that eliminates PE exposure while enabling full UK market participation.

VAT Considerations When Hiring in the UK

VAT doesn’t apply to employee wages, but understanding UK VAT rules is important for comprehensive compliance planning.

Employee-Related VAT:

• Wages and salaries: No VAT applies
• Employee benefits: May be subject to VAT depending on the benefit type
• Contractor payments: May include VAT if contractor is VAT-registered

VAT Registration Requirements:

• UK-established businesses: Must register if turnover exceeds £85,000
• Non-established businesses: Must register from the first £1 of UK taxable sales
• Recovery of VAT: Only possible if you’re VAT-registered

Strategic Considerations:

• Consider VAT implications when structuring UK operations
• Understand impact on pricing and cash flow
• Factor VAT into total cost of UK expansion

Eos provides comprehensive guidance on VAT implications and helps coordinate VAT compliance with employment tax obligations for seamless UK operations.

Other Legal and Regulatory Requirements Employers Must Follow

Beyond tax obligations, UK employers must comply with extensive legal and regulatory requirements that affect hiring decisions and ongoing operations.

Employment Law Obligations:

• Minimum wage: Currently £11.44 per hour for workers aged 21+
• Statutory leave: 5.6 weeks annual leave, sick pay, maternity/paternity leave
• Right-to-work checks: Must verify and document employee work authorisation
• Workplace pensions: Automatic enrollment and minimum contributions required

Data Protection (UK GDPR):

• Obtain explicit consent for data processing
• Implement appropriate technical and organisational security measures
• Maintain data processing records and impact assessments
• Appoint Data Protection Officer if required
• Non-compliance penalties up to £17.5 million or 4% of global turnover

Health and Safety:

• Ensure safe working conditions
• Provide necessary training and equipment
• Conduct risk assessments
• Maintain accident records and reporting procedures

Discrimination and Equality:

• Comply with Equality Act 2010 requirements
• Implement fair recruitment practices
• Provide equal opportunities regardless of protected characteristics
• Prevent workplace harassment and discrimination

Managing these complex requirements requires ongoing attention and expertise. Eos ensures full compliance across all legal and regulatory obligations while you focus on growing your business.

Hiring in the UK Without a Local Entity – What Are Your Options?

Many global employers want to hire in the UK without establishing a local company. Two primary options exist, each with distinct advantages and challenges.

1. DPNI (Direct PAYE) Scheme

The DPNI scheme allows overseas employers to operate UK payroll directly:

Advantages:

• Direct employment relationship with UK staff
• Full control over payroll and employment processes
• No additional service fees

Disadvantages:

• Complex HMRC registration and ongoing compliance
• Significant administrative burden
• Personal liability for compliance failures
• Limited support for employment law matters

Suitability: DPNI works best for large organisations with dedicated UK tax and payroll resources. Smaller businesses often find the complexity and risk overwhelming.

2. Employer of Record (EOR) Services

Eos Employer of Record services provide a comprehensive solution:

How It Works:

• Eos becomes the legal employer for UK tax and employment law
• You maintain day-to-day management and control
• Eos handles all compliance, payroll, and regulatory obligations
• Employees work exclusively for your business

Key Benefits:

• Immediate compliance: Start hiring within days, not months
• Risk mitigation: Eos assumes legal and regulatory responsibility
• Cost-effective: No setup costs or ongoing compliance burden
• Scalable: Add or remove employees as needed
• Expert support: Access to UK employment law and tax specialists

Ideal For:

• Testing the UK market before full commitment
• Hiring small teams without local entity requirements
• Accessing UK talent while maintaining operational flexibility
• Reducing compliance risks and administrative burden

Eos Employer of Record services provide the security and compliance of local employment with the flexibility of global operations. Learn more about simplifying UK taxes with an Employer of Record (EOR) and how this approach eliminates tax complexity.

Eos: Your UK Tax Compliance Partner

Navigating UK tax complexity doesn’t have to slow your expansion plans. Eos provides comprehensive support that eliminates compliance risks while enabling rapid market entry.

Our UK Tax Services:

• PAYE administration: Complete payroll processing and tax calculations
• NICs management: Employer and employee contribution handling
• OWR implementation: Maximise tax relief for international employees
• Compliance monitoring: Stay current with changing regulations
• Employee support: Direct assistance with tax questions and issues

Why Choose Eos:

• Boutique approach: Personalised service and direct CEO access
• Local expertise: Deep understanding of UK employment landscape
• Competitive pricing: Transparent, cost-effective solutions
• Proven track record: Successful expansions across multiple industries
• Comprehensive support: From initial hiring to ongoing compliance

Our payroll and compliance services ensure accurate, timely processing while our EOR solution provides complete peace of mind for UK expansion.

Conclusion

Successfully hiring in the UK requires understanding complex tax obligations, but the right partnership makes expansion straightforward and compliant. PAYE registration is mandatory for all UK-based employees, regardless of salary or working arrangements.

Total employment costs include 15.05% employer NICs, plus pension contributions and benefits. Overseas Workday Relief provides significant tax advantages for internationally mobile employees. Permanent establishment risks require careful structuring to avoid UK corporation tax. EOR services offer the fastest, lowest-risk path to UK market entry.

Eos combines local expertise with global perspective to deliver compliant, cost-effective UK expansion solutions. Whether you’re hiring your first UK employee or expanding an existing team, we provide the support and guidance needed for confident growth.

Ready to expand into the UK with confidence? Contact Eos today for a personalised consultation on your UK tax and employment strategy.