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Employment tax and reporting obligations for those working from home, abroad

Employers have naturally been focused on ensuring that their workers are safe during the Coronavirus pandemic and lockdown. However, as those initial steps have now been undertaken, and those workers who can work from home are now well-established in their home offices, employers now need to consider what implications arise from home working.

This is specifically an issue for individuals whose home office is in a different country (or province) from where they usually work with their employer. This could be, for example, employees who usually commute to the UK on a weekly basis from Ireland or France, but who are now working from home in Ireland or France respectively. Alternatively, it could be UK employees who have been ‘trapped’ overseas for a number of weeks because of travel bans but who have been continuing to work for the UK firm whilst overseas, or your foreign employees working in a different province or canton compared to normal.

As home-working arrangements continue (and they may indeed become the ‘new normal’ for many employees), businesses need to realise that these arrangements may create additional employment tax and reporting obligations for them as employers. Why? Because there may be actions required which if not taken could result in adverse financial and compliance implications, both for the employer and their employees.

What is the issue?

It may seem logical to simply keep your ongoing employees on their current payroll arrangements as they are still working for the same employer, typically doing the same job that they’ve always been doing. And, after all, it is only likely to be for a few weeks or months and everything will be ‘back to normal’.

If only tax were that simple! Whilst HM Revenue & Customs (HMRC) once had the tag line: ‘tax needn’t be taxing’, the reality is that it always is. Even very short stays in other jurisdictions can trigger employer-reporting obligations and clearly the longer that home working arrangements last, the greater these implications and risks become.

Main points to consider

Summary of the key considerations:

  • Where non-UK resident employees are working in the UK (e.g. because they cannot go back to their home location), then UK Income Tax may be triggered on their UK duties. This would mean the employer (and this may in some cases, include separate UK companies within the overall group, for example), being required to operate PAYE on the employee’s income.
  • Where employees usually work across borders (e.g. Republic of Ireland residents who normally work in Northern Ireland) are tele-working (i.e. working from a home office in Ireland), you may find that this can trigger reporting obligations in the other country for tax withholding purposes.
  • Where employees who’ve been working abroad repatriate to the UK and work from their UK home, UK Income Tax would normally still be due on UK duties, even where the duties are in respect of the individuals’ role in the overseas jurisdiction (e.g. China, Germany, Spain or wherever). 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 (and all EEA nationals too) 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 in, for example, China or some other foreign location). Worse still, if the six-week period is breached, NIC may then be required for at least a further 52 weeks, even if the employee goes back to work in their ‘regular’ overseas location.
  • For employees who are repatriated to the UK for a short period, it is likely that they will remain tax resident in their overseas jurisdiction. This could mean a dual-tax liability (i.e. tax being imposed in, for example, China and the UK on the same income). In these circumstances, either the UK or the relevant overseas jurisdiction should allow a ‘tax credit’ to mitigate the effects of double taxation. The relevant double tax treaty would need to be consulted in order to determine the country which allows the credit to be claimed.

This area is complex and the position above for each bullet can change markedly, depending on the specific facts and circumstances of each case. There could, for example, also be corporate tax implications. Therefore, it is worthwhile speaking with a tax advisor to establish the particular implications in your case. And doing so now will save you time, effort and potential financial penalties for non-compliance.

Would you like to know more?

If you have any questions about the above, or would like to discuss your specific situation, please get in touch with your usual Blick Rothenberg contact or Robert Salter, whose details can be found to the right.