---
title: "Can a UK company pay an employee who lives overseas?"
description: "Yes. Once an employee lives abroad, UK tax on their overseas work usually stops and local payroll starts. See the UK rules and the main ways to pay."
canonical: https://www.teamed.global/insights/uk-company-paying-overseas-employee
datePublished: 2026-09-15T12:00:00.000Z
---

Last updated: 15 September 2026

Yes, but UK payroll rarely covers it alone. Once the employee is no longer UK resident, HMRC does not tax their pay for work done abroad. Their new country usually does, and their social security usually moves there too. The main exception is a short posting to the EU and a few nearby countries, where a certificate of coverage can keep them on UK National Insurance for up to 2 years.

Three facts decide how you pay someone like this. First, where they are tax resident, which decides whether UK income tax still applies. Second, where they work and for how long, which decides which country's social security they pay into. Third, what they do for you there, because signing contracts can give your company a taxable presence in that country.

A situation we see

The HR lead at a UK company wants to rehire a former employee who now lives in Spain. He would sell to the company's UK clients from Spain and could sign deals for them. The UK team needs to know whose payroll he goes on, which country taxes him, and whether his signature creates a tax risk in Spain.

If your employee has not moved yet, the rules differ, because you would be sending them rather than hiring them where they live. Start with our guide on [whether an employee can move abroad and keep their job](/insights/moving-an-employee-abroad-keep-their-job).

## Does UK PAYE still apply once they live abroad?

Not for the work they do abroad once they stop being UK resident. Per [HMRC's guidance on globally mobile employees](https://www.gov.uk/government/publications/globally-mobile-employees/effect-of-residence-on-an-employees-liability-to-uk-income-tax), a non-resident's earnings are subject to UK income tax only if they relate to work done in the UK. So if a non-resident flies in to work, pay for those UK days can still be taxed here.

Residence follows a legal test, set out in HMRC's statutory residence test (RDR3). It looks at things like how many days the person spends in the UK and whether they work full time overseas. Check that the person really is non-resident before you rely on it.

Sending someone abroad is not the same as hiring someone who already lives abroad. HMRC's PAYE manual says that if you send an employee abroad, you must keep operating PAYE for them. Do not simply stop deductions. For a long-term move, the answer is usually payroll in their new country. Our glossary explains what PAYE covers for UK staff.

## Which country's social security do they pay into?

Social security usually follows the place of work, not the employer. Per [GOV.UK](https://www.gov.uk/guidance/national-insurance-for-workers-from-the-uk-working-in-the-eea-or-switzerland), someone who leaves the UK to work in the EU, Gibraltar, Iceland, Liechtenstein, Norway or Switzerland pays into only one country's scheme at a time. That is usually the country they are working in.

The main exception is a temporary posting. HMRC can issue a certificate of coverage, which shows the worker only needs to pay UK National Insurance while working in one of those countries. It covers a UK employee sent there for up to 2 years, and you apply with [form CA3822](https://www.gov.uk/guidance/tell-hmrc-about-employees-going-to-work-in-the-european-economic-area-ca3822). It is not a work permit, so check visa rules too.

An employee who already lives abroad is not being posted. If you hire or rehire someone who lives in Spain, for example, they will usually pay into Spain's system. For the EU side in more depth, read our [guide to the A1 certificate](/insights/what-is-the-a1-certificate-eu-social-security-guide).

The table sets out the three situations side by side.

| Situation | Income tax | Social security |
| --- | --- | --- |
| They move abroad for good and stop being UK resident | Their new country taxes the work done there. UK tax applies only to UK workdays | Usually the country they work in |
| You send them abroad on a temporary posting | Keep operating UK PAYE, per HMRC's PAYE manual | UK National Insurance, with a certificate of coverage for up to 2 years in the EU, Gibraltar, Iceland, Liechtenstein, Norway or Switzerland |
| You hire someone who already lives abroad | No UK PAYE on the work they do in their own country | Their own country's system |

## Can one employee create a permanent establishment?

Yes. A permanent establishment is a taxable presence. It lets the other country tax the profits linked to that work. One employee can create one if they work from a fixed place for your business or sign contracts for you.

The [OECD Model Tax Convention](https://www.oecd.org/content/dam/oecd/en/publications/reports/2017/12/model-tax-convention-on-income-and-on-capital-condensed-version-2017_g1g8769b/mtc_cond-2017-en.pdf) is the template many tax treaties are based on. Article 5 sets two main tests. One is a fixed place of business, such as a home office used over a long period for your business. The other is a person who "habitually concludes contracts" for the business, like a sales lead who signs deals for you. Your actual treaty and the other country's law decide the outcome.

Home working got clearer guidance in the [OECD's 2025 update](https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/11/the-2025-update-to-the-oecd-model-tax-convention_c7031e1b/5798080f-en.pdf). A home office is generally not a place of business if the person works from it for less than 50% of their total working time over any 12-month period. At 50% or more, it depends on the facts, including what the person does there. So the role matters as much as the address.

No way of paying the person changes this on its own, because the test looks at what they do for your business. Read more in our guide to [employer of record and permanent establishment](/insights/employer-of-record-permanent-establishment).

## What are the ways to pay them?

There are three main routes, plus the contractor option that often comes up. The biggest difference between them is who the legal employer is. That decides who runs payroll in the other country, who files there and who carries the employment duties.

If you employ them directly, you usually have to register as an employer in their country. That means a local payroll, local reports and, usually, local employment law for contracts, notice and leave. Our [Spain hiring guide](/country-hiring-guides/spain) shows what this looks like for one country.

| Option | Legal employer | Who runs local payroll | Often fits when |
| --- | --- | --- | --- |
| UK payroll only | Your UK company | Check the host country's rules, even for a short stay | Short stays by an employee who stays UK resident |
| Register as an employer abroad | Your UK company, registered in their country | You do | You plan to hire more people there |
| Employer of record | The employer of record, in their country | The employer of record | One or two people, with no plan for a local entity |
| Contractor | None. They run their own business. | They handle their own tax | The work is genuinely independent |

This page covers the legal route. For payment methods and transfer options, see our guide to [the best way to pay employees overseas](/blog/best-way-to-pay-employees-overseas-2026-complete-guide).

Which route is right depends on your employee's situation: where they live, how long they will stay and what they will do for you. [Talk to an Expert](/contact?source=insights-uk-company-paying-overseas-employee) at Teamed to work through the payroll, tax and permanent establishment points for yours.

## Frequently asked questions

### Is a few weeks abroad fine on UK payroll?

Usually, yes, if the employee stays UK resident and the stay is short. Check the other country's rules too, including visas. The details depend on the country and the work.

### Does an employer of record remove permanent establishment risk?

No. You have no local payroll or registration of your own. But if the employee habitually signs contracts for your company, the OECD test can still apply.

### Can we use a contractor instead?

Only if they are genuinely independent. If they work set hours, for you alone and under your direction, their country may treat them as an employee. Compare the two routes in our guide to [EOR vs contractor of record](/compare/eor-vs-contractor-of-record).