UK Budget tax increase will raise costs for US businesses with employees in Britain

Bal Lota, Partner says:

The UK Budget announcement yesterday that employer NIC will apply on earnings over £5,000 at a rate of 15% with no upper limit means that American companies will need to consider structuring their expat moves into the UK as secondments rather than permanent relocations.

The cost impact of the UK Budget NIC changes for American companies is stark if we compare the same employee in the UK and US. An American expat with £200,000 of total compensation would result in an employer Social Security cost in the US of £10,960, but the cost of paying National Insurance Contributions for the same employee in the UK jumps to a staggering £29,250.

The UK and US have a Totalization Agreement which will allow an employee seconded from the US to the UK for 5 years or less to remain within the US Social Security system.

This agreement eliminates dual Social Security taxation, which can occur when an employee from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings.

However, under the same agreement, if the employment relationship terminates in the US and the employee is hired locally by the UK subsidiary, they will default to paying UK NIC.

Bal added:

American businesses need to carefully consider which employees they want to move into the UK and for how long, as a long-term move will become costly quickly due to the NIC increase even with the US/UK Totalization Agreement.