Net of foreign tax credit relief (Appendix 5)

Summary

How to process Net of foreign tax credit relief (Appendix 5) in Sage 50 Payroll.

Description

If you have an employee who's sent to work abroad, you may deduct foreign tax for the country in which they work in addition to UK tax.

In this case you can apply to HMRC to use the Net of Foreign Tax Credit Relief arrangement. This is often referred to as Appendix 5.

Resolution

With this arrangement, you can reduce the amount of UK tax by the amount of foreign tax. This can help avoid the employee being taxed by both the UK and the foreign body, and will reduce your liabilities to HMRC. You can only offset the value of the foreign tax up to the value of the UK tax.

You must then report the reduced and foreign amounts of tax to HMRC under real time information (RTI). Information about the reduced UK tax values, and the foreign tax paid, are reported to HMRC as part of your full payment submission (FPS), as part of the deductions from net pay value.

Before you can operate a net of foreign tax arrangement, you must first register to HMRC to do so.

Enable net of foreign tax credit relief

If you need to use this arrangement and you've registered with HMRC, you need to ▼ enable it in your software.

Click Company then click Settings.
In the Details tab, select the Operate net of foreign tax credit relief check box.
Click OK then click OK.

Set an employee as paying foreign tax

Once you've enabled this arrangement in your Sage 50 Payroll company, you need to ▼ enable it for the relevant employees.

You can set the employee as paying foreign tax via their employee record, or if you have several employees to set up, you might prefer to use Global Changes.

Usually an employee who is paying foreign tax should also be set to a Week 1 / Month 1 tax code. If you have further questions on what tax code to use with your employee(s), you should refer to HMRC.

From the employee record

On the Employee List, double-click the required employee.
Click the Employment tab.
Select the Operate net of foreign tax credit relief check box then click OK.
If the employee's tax code isn't set as week 1 / month 1, a message appears to advise, click OK.
if the employee's tax code as provided by HMRC is not cumulative, select the Week 1/Month 1 Basis check box.
Click Save then click Close.

NOTE: You must ensure that you use the correct tax code as specified by HMRC. If the tax code is cumulative, do not select this check box.

Using Global Changes

On the Employee List, select the required employees.
Click Tasks then click Global Changes.
Click Net of Foreign Tax then click Set Net of Foreign Tax Flag.
Click Yes then click OK.
If required, for any employees who should use a non-cumulative tax code, select the required employees.
Click Tasks then click Global Changes.
Click Tax Codes then click Set Week 1/Month 1 flag then click Yes.

NOTE: You must ensure that you use the correct tax code as specified by HMRC. If the tax code is cumulative, do not select this check box.

Record foreign tax amounts

Once you're set up, you can use Enter Payments to ▼ enter foreign tax values.

On the Employee List, select the required employees.
Click Payroll then click Enter Payments.
Click the Payments tab then Foreign Tax.
NOTE: If the Foreign Tax button doesn't appear, check the employee is set up for Appendix 5. If the issue persists, go to the Summary tab and check for the Foreign Tax button here.
Enter the amount of foreign tax due in the current period and, if you're advancing pay, in the advanced period then click OK.

After entering the relevant foreign tax, the amount of PAYE in Enter Payments will still show the full value of tax owed by the employee. However, it will now be partially made up of the foreign tax entered.

TIP: If the amount of Foreign tax exceeds the amount of UK tax in a period, or if the employee is due a tax refund, please refer to the Common Questions section for more advice.

Check amounts deducted

If you'd like to check the year to date amount deducted, or for previous periods, you can ▼ check the employee's record.

On the Employee List, double-click the required employee.
Click the Employment tab then click YTD Values.
Click the Tax tab then in Foreign Tax, check the amount shown in the Foreign Tax Deducted box.
If required, to check the amounts for individual periods, click the drill down button. You can then view the amounts for each updated pay period.

Stop using this arrangement

If you need to stop using the net of foreign tax arrangement for any employees, you can ▼ disable it in the employee record.

NOTE: Before you stop operating the net of foreign tax credit relief arrangement, you must inform HMRC.

From the employee record

On the Employee List, double-click the required employee.
Click the Employment tab then clear the Operate net of foreign tax credit relief check box.
To set your employee's tax code as week 1 / month 1, select the Week 1/Month 1 check box.
NOTE: You must ensure that you complete this step, as it ensures that the employees' tax isn't recalculated. This also prompts HMRC to confirm the correct tax code for the employee.
Click Save then click Close.

Using Global Changes

On the Employee List, select the required employees
Click Tasks then click Global Changes.
Click Net of Foreign Tax then click Clear Net of Foreign Tax Flag.
Click Yes then click OK.
Click Tasks then click Global Changes.
Click Tax Codes then click Set Week 1/Month 1 flag then click Yes.
NOTE: You must ensure that you complete this step, as it ensures that the employees' tax isn't recalculated. This also prompts HMRC to confirm the correct tax code for the employee.

How foreign tax is displayed and recorded in Sage 50 Payroll

Reports

Most standard reports and payslip layouts within Sage 50 Payroll, show the full amount of UK tax that is calculated on the employee's pay, excluding any foreign tax.

Here is how some of the most common reports ▼ display the information.

Payslips - Show the full UK tax figure
P32 Employer Payment Record - Shows the reduced amount of tax due to HMRC
P45 - Shows the reduced amount of tax due to HMRC
P60 - Shows the reduced amount of tax due to HMRC

Payslip layout

If you prefer, you can ▼ add net of foreign tax information to your payslip layout.

Click Payroll, then Pre-update Reports.
Find the payslip you'd like to update, right-click it and select Edit.
The Sage Report Designer opens. Click Toolbox, then Add Expression.
On the report layout, select where you'd like to add the new field, the Expression editor then opens.
In the Fields box to the bottom right box, double-click CurrentPay.
Scroll down this list of expressions and double click ForeignTaxCreditCur.
The required expression CurrentPay.ForeignTaxCreditCur now appears in the large window of the Expression editor. Click OK.
Move or resize your new data field on the payslip if required by clicking and dragging the edges of the box.
On the menu bar click Toolbox, then click Add Text.
NOTE: This text field is to explain what the Appendix 5 value is. The steps you followed above only added the value, with no description.
Click once where you want the text to appear, beside the foreign tax expression.
Enter the text you want, for example 'Appendix 5' then click a blank area.
If required, click and drag to move or resize the text box, or change the font or colour of your text.
Click File, then Save as.
Double click the REPORTS folder, then double click the folder for the type of payslip you've edited:
- For a Laser payslip, double click the PAYSLIPSLASER folder
- For an Email payslip, double click the PayslipsEmail folder
- For a Dot Matrix payslip, double click the PAYSLIPSDOTMATRIX folder
Update the name for this amended payslip, and click OK.

Your updated payslip is now available to use within Pre-update Reports.

For further information on amending payslips, visit our report designer - the basics article.

Nominal Link

If you post salary journals using the nominal Link to post the information to your accounts program, the full UK tax is sent across.

To show the amount of foreign tax, you must record a salary journal in your accounts program.

Full Payment Submission (FPS)

The full payment submission (FPS) liability only shows the full UK PAYE value that has been calculated for the employee.

In the background, the FPS also contains further detail on the value of taxable pay, the UK PAYE and any ▼ foreign tax that you've entered.

Name	Value
Taxable Pay in This Period	Taxable gross pay
Deductions From Net Pay	The foreign tax amount in the current period, and any other deductions from net pay.
Tax Deducted or Refunded	The adjusted UK PAYE value.
Taxable Pay to Date	The taxable gross pay for the full year to date.
Total Tax to Date	The adjusted UK PAYE figure for the full year to date.

NOTE: The adjusted UK PAYE is the value after the foreign tax amount has been deducted from the UK calculated value. This is capped at zero, so will never show a negative amount.

Download additional reports

Alternatively, to view the UK tax, foreign tax and any shortfall, you can ▼ run the following reports.

Click Help then click About.
Note the path shown for Reports directory.

Click the Download report button for the required report below.
The following reports are available:

Report name	Details
Appendix 5 - Amount summary	This report appears in Pre-update Reports > User Defined (Local). It shows the reduced UK Tax and foreign tax in the current period from enter payments. NOTE: If a value appears on this report, you don't need to do anything. The foreign tax amount is limited to the amount of UK PAYE due in the pay period.
Appendix 5 - End of year employer report	This report appears in Reports > User Defined (Local). This report provides an end of year summary
Appendix 5 - Leaver statement of Overseas Tax	This report appears in Reports > User Defined (Local). This report shows a summary of the foreign tax to be given to a leaver.

Report name

Details

Appendix 5 - Amount summary

This report appears in Pre-update Reports > User Defined (Local).

It shows the reduced UK Tax and foreign tax in the current period from enter payments.

NOTE: If a value appears on this report, you don't need to do anything. The foreign tax amount is limited to the amount of UK PAYE due in the pay period.

Appendix 5 - End of year employer report

This report appears in Reports > User Defined (Local).

This report provides an end of year summary

Appendix 5 - Leaver statement of Overseas Tax

This report appears in Reports > User Defined (Local).

This report shows a summary of the foreign tax to be given to a leaver.

NOTE: The steps below refer to downloading the report using Internet Explorer with its default settings.

If required, enter your email address and password to log in to the support site then click Log in then select the required company.
Click Download then click Save.
Browse to the reports directory you noted in step 2.
Double-click the UserDef folder then click Save.
If required, repeat these steps for any additional reports.

You can now run the required report from the folder listed in the table above.

Common Questions

If you'd like some more information on this arrangement, you can view the ▼ frequently asked questions.

Why does the full amount of UK tax still show on the employee's payslip?

All standard payslips within Sage 50 Payroll show the full amount of UK tax that is calculated on the employee's pay, excluding any foreign tax. If you prefer, you can add net of foreign tax information to your payslip layout. Alternatively, you can download and run the Appendix 5 reports. For more information, please refer to the View reports that show foreign tax information section.

I've only been given foreign tax figures at the end of the year. Can I enter YTDs?

As foreign tax is processed period by period, you cannot enter YTD values for foreign tax.

You would need to enter any foreign tax figures in Enter Payments against the value of UK PAYE in that period.

Alternatively, you may be able to rollback and reprocess to the employee to split out the values, however you speak to HMRC for further guidance and authorisation first.

I only find out every quarter the amount of foreign tax, is this supported?

Yes, however you can only enter foreign tax values on a period by period basis.

You would need to enter any foreign tax figures in Enter Payments against the value of UK PAYE in that period.

Alternatively, you may be able to rollback and reprocess to the employee to split out the values, however you speak to HMRC for further guidance and authorisation first.

The amount of foreign tax is greater than the UK amount. Is there anything extra I must do?

If the amount of foreign tax is greater than the amount of UK tax owed by the employee, they still need to pay the full amount of foreign tax to the foreign body.

To do this, you should first enter the relevant amount of foreign tax in Enter Payments. This will automatically be capped by the amount of UK tax, and will not take anything above this.

To deduct the extra amount of foreign tax owed, you should set up a post-tax, post-national insurance deduction for the excess foreign tax. Set up and assign deductions >

What happens if my employee gets a tax refund?

If an employee is calculated to be due a tax refund in a period, then the amount of tax they can be refunded will be limited to the reduced amount of UK PAYE that they have been paid in the year, after any foreign tax has been deducted. Foreign tax will not be refunded to the employee.

For example,

An employee has paid £1000 of tax to date, including £600 of foreign tax.

The maximum amount of tax the employee can be refunded would be £400.

If an employee receives a tax refund in a period, then any normal foreign tax for the period cannot be entered.

You should enter the foreign tax for that period as post-tax, post-national insurance deduction. Set up and assign deductions >

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Solution ID: 200427112321588
Last Modified Date: Wed Oct 15 09:42:14 UTC 2025
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