Naturally, the wellbeing of employees continues to be every employer’s immediate concern. Beyond this, employers are starting to think about the tax, social security and payroll implications in respect of employees:
- who have temporarily repatriated to the UK
- that find themselves working in another country due to quarantine rules
- that have decided to return to their home country to work from home.
Several countries, like the UK, are relaxing some of their rules. However, employers should be cautious since such rule changes are specific and do not remove all potential additional employer and employee compliance obligations.
Unfortunately, this is not an area that employers can ignore, and some action will be required now to review the position, in order to avoid storing-up future employer and employee compliance issues.
Repatriations to the UK
Where non-UK resident employees repatriate to the UK, there are a number of considerations. These range from assessing whether this will trigger UK tax residence (which would then potentially trigger employer and employee tax obligations in the UK) or, where employees remain non-UK resident, whether there are any implications of them working from home in the UK.
There has been some relaxation in this area. Her Majesty’s Revenue & Custom (HMRC) has updated its guidance so that when counting days to determine an individual’s UK residence position, days will be disregarded as ‘exceptional’ (up to a maximum of 60-days) where employees:
- are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
- find themselves advised by official Government advice not to travel from the UK as a result of the virus and are unable to leave the UK as a result, or
- are asked by their employer to return to the UK temporarily as a result of the virus.
HMRC are considering additional relaxations that have been requested by employers and so further updates are expected in due course.
Non-UK resident but working the UK
Where employees remain non-UK resident but repatriate to the UK and perform duties in the UK, there are still potential employer and employee implications:
- Where non-UK resident employees (who normally work overseas) come back to work in the UK for their UK-based employer, then UK Income Tax is likely to be triggered on their UK duties. This would require the UK employer to operate PAYE on the employees’ income, even where the income is paid from outside the UK and the period of repatriation is only a few months.
- Where employees repatriate to the UK and work from home, UK Income Tax would normally still be due on UK duties, even where the duties are in respect of the individuals’ role overseas. The reason for this is that UK tax in these circumstances is triggered by the fact that the individual is working on UK soil, rather than the nature of those duties.
- UK nationals are still entitled to the UK personal tax-free allowance, even when they are non-UK resident. Therefore, it is possible that the UK personal allowance will cover any income earned in respect of UK duties, but this should be reviewed.
- National Insurance Contributions (NIC) are a particularly difficult area for expatriate employees. Where the employee works back in the UK for six-weeks or more, NIC are likely to be required by both the employer and the employee (again, even if the income is being paid via a payroll overseas). Worse still, if the six-week period is breached, NIC will then be required for at least a further 52-weeks, even if the employee goes back to work overseas in a few months. The position may be different if the employee normally works in another EU country or a country with which the UK has a social security agreement.
- For employees who are repatriated for a short period, it’s likely that they will remain tax resident in an overseas country. This could mean a dual-tax liability (i.e. tax being imposed in the overseas country and the UK on the same income). In these circumstances, either the UK or the overseas country would normally allow a ‘tax credit’ to mitigate the effects of double taxation.
Employees working overseas
Many employees are currently working outside the UK in countries where they would not normally work. These are often employees who have returned to their home country from the UK in order to care for family members and/or otherwise work from home. There are also employees who simply can’t currently leave their accommodation due to local restrictions.
For this category of employee, employers may want to support employees in reviewing any tax obligations overseas. For example, much like the UK, employees can trigger a tax liability when they work outside the UK, even if they do not become resident in the overseas country. Of course, the longer this situation goes on, the more likely it is that employees are going to trigger non-UK tax obligations, even where they are not paid overseas and are working from home. Employers may also want to review whether there are any local relaxations to the tax rules regarding such employees.
EU Social Security
The fact that employees are working overseas could also trigger employer obligations. For example, employees returning to their home country to work from home in the EU, could trigger a non-UK Social Security liability where they work in the overseas territory for more than 25% of their total working time (normally measured over a 12-month period). Under current EU Regulations (under which the UK is still bound), UK employers in such circumstances would be required to register to operate employer Social Security in the overseas EU country. Like many governments globally, the EU is considering whether revisions and relaxations are needed.
Triggering a non-UK corporate presence
Finally, the activities of employees working overseas could unwittingly trigger a corporate presence (or ‘permanent establishment’) for their UK employer in the overseas territory. This could mean the UK employer being required to register a branch overseas, file corporate tax returns and potentially pay non-UK Corporate Tax on any profit deemed to be generated in the overseas country. The risk would normally be low where the employee is only working for a month or so overseas but will increase the longer an employee remains in this position.
What should employers and employees do?
From a practical perspective, it is important for employees to keep a careful record of the number of days they spend and work in a country, in order that any issues can be more easily identified. Furthermore, we would recommend that employees liaise with their employers to identify whether there are any additional tax obligations for them, arising from their new working arrangements.
For employers, we would recommend that they review their workforce now and begin to identify any cases that may trigger compliance obligations. Whilst we are at the early stages of these new working arrangements, it will be better for employers and employees to get on top of this now, especially for those employers who have many people in this position.
Would you like to know more?
If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.
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