Section 690 Changes for 2025/26: What employers need to know

If your organisation has internationally mobile employees working in the UK, you could be affected by important changes introduced by HMRC to the previously known as ‘Section 690’ directive process.

These updates, effective from 6 April 2025, aim to simplify how PAYE is operated for employees who are not fully subject to UK tax on all of their earnings.

Understanding the new process and taking timely action is key to remaining compliant and avoiding payroll errors. In this blog, we explore what Section 690 directives are, what’s changing, and how employers should respond.

Who is affected by the Section 690 changes?

Section 690 directives are relevant for organisations with employees who split their working time between the UK and other countries. Commonly impacted groups include employers in sectors with a high volume of international assignments, such as tech, financial services, and consulting, that have employees who are:

• Non-UK tax resident with limited UK workdays
• Eligible for Overseas Workday Relief (OWR)

These employees may not be liable to pay UK tax on their entire income, and the Section 690 process allows employers to withhold PAYE only on the portion of earnings attributable to UK duties.

What is a Section 690 Directive?

Under the Income Tax (Earnings and Pensions) Act 2003, employers can apply to HMRC for approval to withhold PAYE only on the part of an employee’s income that relates to UK workdays. This prevents unnecessary overpayment of UK tax where employees are taxed elsewhere on a portion of their income.

Historically, employers had to wait for HMRC to approve a Section 690 application before adjusting payroll deductions. This often caused delays and administrative burdens, especially for globally mobile workforces.

What’s changing from 6 April 2025?

HMRC has announced a significant simplification of the process from the start of the 2025/26 UK tax year. Key changes include:

• No prior HMRC approval needed: Employers can now implement the change as soon as they receive an auto-acknowledgement from HMRC, rather than waiting for formal approval.
• Existing directives are no longer valid: Any Section 690 directives issued for 2025/26 and beyond ceased to be valid as of 6 April 2025.
• Annual notifications required: Multi-year applications are no longer accepted. A fresh notification must be submitted at the start of each UK tax year for each eligible employee.

This new approach is intended to streamline administration and allow for more efficient payroll processing, while still requiring employers to perform accurate reconciliations based on actual workdays.

What is the new process for notifications?

Employers should follow this updated five-step process:

1. Assess eligibility: Confirm whether the employee is a non-UK tax resident or qualifies for OWR.
2. Submit online notification: Use HMRC’s new digital service to notify them that only part of the employee’s income will be subject to PAYE.
3. Receive auto-acknowledgement: You can proceed to adjust the payroll once this is received.
4. Implement partial PAYE withholding: Adjust payroll calculations based on the employee’s estimated UK workdays.
5. Reconcile at year-end: The employee should calculate the actual UK workdays and correct any over- or under-withheld tax as part of the annual self-assessment tax return process.

The new system increases flexibility but puts the onus on employers to ensure accuracy and timely submissions.

What employers need to do now

To prepare for these changes, employers should:

• Identify employees who had Section 690 directives in place for 2025/26
• Submit new notifications via HMRC’s online service before processing the April 2025 payroll
• Update internal payroll and tax processes to support the annual re-notification requirement going forward

Failing to take these steps could result in incorrect PAYE deductions or compliance issues.

How we can help

If AAB has previously supported your organisation with a Section 690 directive for 2025/26, we will be in touch to guide you through the next steps. For new applications or further advice, we can:

• Assess employee eligibility for partial PAYE withholding
• Complete and submit the required online notifications
• Assist with year-end reconciliations and compliance

Please reach out to Claudia Zwirn or your usual AAB contact for tailored support.