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The impact of globally remote work on the taxation of UK pensions

We look at the impact of globally remote work on the taxation of UK pensions, and specifically auto-enrolment

The new global workplace and the way in which we work has changed dramatically

Employers and employees are seeking new ways of engaging in their work and many now do their work remotely from anywhere in the world – where, when and how they choose. With advances in technology and communications, it has never been easier for employees to work anywhere.

However, globally mobile employees can bring new complexities for employers.

Are remote workers covered by auto-enrolment?

The requirement to auto-enrol a worker into a contributory pension scheme applies to an individual who is working or ordinarily works in the UK under the worker’s contract. This raises questions for employers who have workers who move in and out of the UK or are working remotely in another country. A UK employee could be working from home in the Netherlands, for instance.

In one High Court case that involved cruise ship workers who spent a significant majority of their time outside UK territorial waters, the Court held that for a worker who travels from place to place as part of their work then the question of whether they ordinarily work in the UK will be determined by where they are: “based”.

The concept of a base is that of a place from which a worker sets off at the start and to which the worker returns at the end of a period when the worker is travelling in the course of their work. To satisfy this test there has to be: “a sufficient degree of regularity” in the worker’s departure from and return to a place. A single tour beginning and ending at the same port for instance, would not justify that port as being the place where the individual “ordinarily” worked.

Some key points:

  • “base” is to be determined by reference to what happens in practice, not just by looking at the wording of the employment contract
  • a person’s “base” may be in the UK, notwithstanding that most of their working time is spent outside the UK
  • the length of absence may not matter to the question of where a worker is based
  • it is not necessarily the case that every worker will have a base. The mere fact that no other country can be identified as the worker’s base does not necessarily mean that a worker is ordinarily working in the UK
  • an overseas employee sent to the UK for a few months to carry out a particular project should not be regarded as working in the UK

There are three types of employee who could be impacted by this guidance                  

1. Employees who work wholly in the UK

It should be relatively easy to identify workers who work only in the UK. This will be the case if the worker’s contract provides for them to be based at a location in the UK, and they physically work in the UK (and not from overseas remotely or on an overseas secondment).

It does not matter whether the worker is a UK citizen or not.

2. Globally remote workers and employees who do not work full time in the UK

Where an employee does not work full time in the UK, then the employer will need to identify whether the worker ‘ordinarily’ works in the UK. In its guidance the Pensions Regulator has stated that the primary issue to be considered is where the worker is based and that the starting point is: “What the worker’s contract of employment says and also how the contract is operated in practice”. The guidance broadly summarises the case law that has developed in this area in relation to similar questions of worker location and an employer should also consider a number of different aspects including some of the following:

  • where the employee begins and ends their work
  • where their private residence is or is intended to be
  • where the worker’s headquarters is
  • what currency they are paid in
  • whether they pay National Insurance contributions in the UK
  • whether the employment contract is with an employer located in the UK (noting there may be a difference between a subsidiary and a branch for instance)
  • whether this arrangement is only temporary and is there is an expectation that the employee will return to the UK at the end of the temporary arrangement

3. Employees coming to the UK from overseas

An employer will need to consider whether the employee’s base remains outside the UK. If it does, then the employee is not likely to be considered by the Pension Regulator to be regarded as: “ordinarily working in the UK”. The following points should be considered:

  • Does the employment contract remain with the overseas employer?
  • Is there an expectation that the employee will return to the non-UK employer at the end of their secondment or temporary project?

What happens if an employer gets it wrong?

The Pensions Regulator acknowledges in its guidance that there is not a fully developed set of legal rules that employers can follow to identify whether someone is: “ordinarily based in the UK”. Court decisions might be made over time, but employers will still need to make policy decisions in the meantime.

Employers should therefore follow the guidance the Regulator has given as a starting point. In clear cut cases this may suffice. However, where there is an element of uncertainty about a worker’s location, advice will be needed to decide how the auto-enrolment process should be handled and to assess any associated risks.

There are certain legal duties an employer must meet for automatic enrolment. If an employer doesn’t comply with those duties, the Pension Regulator have said that may take enforcement action.

The employer is responsible for meeting its legal duties for automatic enrolment.

If an employer doesn’t comply, they may face enforcement action including compliance notices, and penalty notices (fines). If an employer complies late, the Pension Regulator expects you to pay back any missed contributions to put staff in the position they would have been in if you had complied on time; this would include backdating contributions to the day that your employee first met the age and earnings criteria to be put into a scheme. As part of any enforcement action, the Pension Regulator may require that you pay your staff member’s contributions as well as your own.

What actions should you take?

We recommend the following:

  1. Identify the base: Identify where it is not clear that an employee has a “base” in the UK or is “ordinarily working” in the UK. Seek advice when needed.
  2. Assess auto-enrolment: Where it is not clear you should make an assessment to either auto-enrol or not to auto-enrol. It is important when making an assessment, especially where the decision is not to auto-enrol, to put a copy of the assessment on file in case the Pension Regulator decides to review the assessment you have made; and to share that assessment with that employee. Re-review the situation periodically in case there have been any material changes.
  3. Should you stop? Consider stopping employer pension contributions under auto-enrolment when it does not apply to a particular employee.
  4. Review the tax treatment: Review the tax treatment of employer contributions (and employee contributions) to a UK pension fund in the country in which the employee is remote working. Employer contributions may be treated as taxable employment income in that location, and even where there is ‘corresponding tax relief’ on pension contributions in the overseas location, it is unlikely the same UK pension limits will apply there, and pension levels may be more restricted overseas. Don’t forget there may also be additional pension obligations or arrangements in the overseas location where the employee is working remotely.

If you would like to discuss any the above or how it might impact your business or employees, please get in touch with your usual Blick Rothenberg contact or one of the Partners on this page.

For more information about managing a globally remote workforce, visit our Globally Remote Working Hub for the latest news and insights.

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Mark Abbs
Mark Abbs
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