Don’t get caught out by the changes from 6 April 2025
Section 690 ITEPA 2003 has undergone significant changes since the start of the new tax year. This section of the Income Tax (Earnings and Pensions) Act 2003 deals with employees who work partly in the UK and partly overseas. It allows employers to apply for a special arrangement where they can deduct tax ONLY on the portion of salary that relates to UK duties rather than the entire salary.
What’s changed with Section 690?
If you’re an employer dealing with payroll or an employee working abroad, you’ll want to know about the important changes HMRC has made to Section 690. These changes came into effect on April 6, 2025.
1. Digital application process
The most significant change is the shift to a fully digital application process. Previously, employers had to submit paper forms to apply for Section 690 arrangements. Now, all applications must be made through the HMRC online portal. This change aims to speed up the approval process and reduce paperwork.
2. Stricter timeframes
HMRC has introduced stricter timelines for applications:
- New applications must be submitted at least 30 days before the arrangement is needed
- Renewals must be filed at least 60 days before the current arrangement expires
- Late applications may result in the employee being taxed on their full salary until the arrangement is approved.
3. Enhanced documentation requirements
Employers now need to provide more detailed documentation to support their applications, including:
- A breakdown of expected workdays in and outside the UK
- Clearer evidence of overseas tax compliance
- More detailed employment contracts showing the split of duties
4. Annual review
All Section 690 arrangements must now be reviewed annually. Previously, some arrangements could continue indefinitely once approved. This change ensures that HMRC has up-to-date information on employees’ working patterns.
5. New thresholds for eligibility
To qualify for Section 690 relief, employees must now spend at least 30% of their working time outside the UK (up from the previous 25%). This change may impact employees who spend most of their time in the UK with occasional overseas work.
IMPORTANT : Any directions issued by HMRC prior to 6 April 2025 will cease. A new Section 690 claim will therefore be required for all eligible and qualifying employees.
Sarah’s scenario
Sarah is a British citizen and UK tax resident. Sarah works for a UK company as a senior consultant. She splits her time 40% in the UK and 60% in various EU countries. Her annual salary is £85,000.
Under the previous Section 690 arrangement:
- Sarah’s employer applied for a Section 690 Direction from HMRC
- HMRC approved a PAYE arrangement based on Sarah’s expected UK workdays (40%)
- Each month, her employer deducted PAYE tax on 40% of her monthly salary (£2,833, which is 40% of £7,083)
- Sarah paid UK tax on her UK workdays through PAYE
- She filed a Self-Assessment tax return annually to report her overseas earnings and claim Foreign Tax Credit Relief for any foreign taxes paid
After April 6 2025
- The Section 690 Direction is no longer available
- Sarah’s employer must now apply PAYE to her full monthly salary (£7,083)
- Each month, UK income tax is deducted from her entire earnings
- Sarah’s employer must make a new Section 690 claim to HMRC for a NT (No Tax) code for the portion of her income related to overseas work
- Alternatively, she can reclaim the excess tax paid through her Self Assessment tax return, but this means that ALL her income is taxed under PAYE at the time it is earned.
How might these changes affect you?
For Employers:
- You’ll need to familiarise yourself with the new digital application system
- Plan further ahead to meet the new application timelines
- Gather more comprehensive documentation
- Implement processes to track and review arrangements annually
- Review your current Section 690 arrangements to ensure they meet the new 30% threshold
For Employees:
- Be aware that your tax arrangements may need to be reviewed
- Ensure you’re accurately tracking your workdays in and outside the UK
- If you’re near the 30% threshold, you may need to adjust your working pattern
- Prepare for potential changes to your take-home pay if arrangements change
Action Steps to Take Now
- Audit existing arrangements: Review all current Section 690 arrangements to ensure they meet the new criteria
- Register for the digital service: Make sure you have access to the new HMRC online portal
- Update your documentation: Gather the additional information required for applications and renewals
- Revise your timelines: Adjust your processes to accommodate the new application timeframes
- Communicate with affected employees: Ensure they understand how these changes might impact them
The Benefits of These Changes
While these changes may initially create additional work, they should ultimately lead to:
- Faster processing of applications
- Greater certainty about tax status
- Reduced risk of unexpected tax bills
- Better alignment with international tax obligations
The April 2025 changes to Section 690 represent a significant update to how HMRC manages taxation for employees working across borders. By understanding and preparing for these changes now, employers and employees can ensure a smooth transition to the new system and avoid potential compliance issues, and importantly for the employees, deductions of the correct amount of Income Tax.
Useful links
Section 690 Application form
Section 690 Directions
Guidance notes for application
Are you still unsure how to best handle the changes to Section 690? why not contact a member of the Ascend Payroll team. Our experienced team are on top of the latest payroll legislation.
