The UK-EU Trade and Cooperation Agreement (TCA) has now been published in full containing the details of the Social Security rules to be applied between the EU states and the UK from 1 January 2021. At the time of writing, the agreement has been approved in the UK and, while the European Parliament is still to formally approve the agreement, ambassadors from all of the 27 EU member states have already unanimously approved it and it is expected to be approved by the European Parliament in due course.
While the TCA provides some clarity in terms of the future rules (i.e. a continuation, to some extent, of the old rules), there are still several areas that are currently unknown or are not clear. There are also some marked changes in some cases, as outlined below. Therefore, each case should be reviewed and considered carefully.
1. Working abroad before 1 January 2021?
Workers posted between the UK and the EU States, Norway, Switzerland, Iceland and Liechtenstein prior to 1 January 2021 should be protected by the UK / EU Withdrawal Agreement, which covered the UK’s initial withdrawal from the UK in 2020 (similar agreements were signed with the EFTA member states). The Withdrawal Agreement applies to EU citizens and UK nationals and states that individuals: “shall be covered for as long as they continue without interruption to be in one of the situations … involving both a Member State and the United Kingdom”.
What this effectively means is that an assigned worker (or cross-border worker) with a valid Form A1 certificate who remains on their posting should continue to covered by that Form A1, i.e. Social Security should remain payable in the home country and not the host country.
This will be relevant for ongoing current postings to and from the EU States that decide not to sign up for the new detached worker rules (see below), though some uncertainty remains about how member states will consider terms such as ‘without interruption’ from a practical perspective. Employers may therefore need to obtain specific advice, particularly for any ‘non-standard situations’ – e.g. where people get seconded to additional states in the EU (e.g. because of a change in role or promotion) or where there is a change in the legal employer.
2. Social Security (NICs) Arrangements in cross-border situations from January 2021 onwards
This agreement includes a Protocol on Social Security Coordination which is to apply to persons and their families who are, or have been, subject to the legislation of the UK and/or one or more of the EU States.
As a starting point, the TCA Social Security Protocol broadly mirrors the core EU Social Security coordination regulations. Therefore:
- employers and employees (and the self-employed) will be subject to the Social Security legislation of one country only
- the scenario of compulsory payment of Social Security contributions on the same earnings in more than one country should not arise.
- contributions will generally be payable in the country where activities are undertaken.
Please see below for more information on the special provisions for multi-state workers (so called cross-border workers) and detached (seconded) staff.
3. Frontier workers
Frontier workers – also known as multi-state workers or cross-border commuters – will continue to be liable to Social Security in one location. The TCA rules remain broadly akin to the historical EU regulations, and as such frontier workers would usually be covered by the legislation of their home state, if they carry out a substantial part of their activity in that State. If this is not the case, then generally the Social Security liability will fall under the legislation of the country in which the employer is situated.
For Social Security purposes within the EU, the term ‘substantial’ has usually been taken as at least 25% of one’s working time (or employment or self-employment income) as the main indicator. In the absence of new guidance, we would therefore suggest that at this stage, the 25% definition remains valid.
4. Seconded workers
For seconded employees (or the so-called detached workers per the TCA), it is probable that (in most cases), the rules will remain similar.
That is, the TCA Social Security Protocol potentially allows for people who are seconded to an EU territory for up to 24 months, to remain in the UK NIC system providing the individual isn’t replacing another seconded employee, for example. It is then possible to extend the period of coverage up to a total five-year period. However, there are some differences from the historical EU Social Security arrangements including:
- there is currently no guidance that this 24-month period can be extended, in the way that it could be previously. At this stage, one would probably have to assume that such Social Security arrangements cannot be extended and this would have significant negative cost implications for UK companies sending international assignees to higher Social Security regimes (e.g. Belgium, France, Poland & Italy) on longer-term arrangements
- the TCA provides EU states with an ‘opt out’ – that is, EU states must individually agree to apply the detached worker rules by 1 February 2021 in order for them to continue to apply. Therefore, there is no guarantee that these rules will apply for all postings and we will need to wait for the EU member states to formally confirm their respective agreement or non-agreement. There is a risk that certain states – e.g. those with high Social Security charges such as France or Italy, may elect to ‘opt out’ of the Protocol.
For secondments starting between 1 January 2021 and 1 February 2021, where an employee is being posted to a country that is yet to opt out of these rules, they will be treated as if the rules do apply for as long as their activities continue. Therefore, regardless of whether the EU State subsequently opts out, the worker can continue to be covered under their home country legislation with a valid certificate.
In those cases where the EU states do decide to opt out of the detached worker rules, employers and employees will be liable to pay contributions in the country where they are temporarily working (unless they are in the scope of the Withdrawal Agreement). However, it still stands that double contributions cannot be charged (i.e. so UK NICs would cease in this situation for UK outbound employees), though it is not presently clear what back-up evidence etc. would be required in such situations from an HM Revenue & Customs (HMRC) audit / review perspective.
5. EFTA States
There are special rules for secondments between the UK and Norway, Switzerland, Iceland and Liechtenstein which started on or after 1 January 2021. This is on the basis that these jurisdictions are not within the terms of the UK / EU TCA.
Whilst the UK has active Social Security Agreements with Switzerland and Norway, which should provide exemption from Swiss Social Security for assignments of up to two years and Norwegian assignments of up to three years (providing the appropriate documentation is in place on a timely basis), the position with regard to Iceland and Liechtenstein are (at the time of writing), unclear.
As such, subject to the local rules which apply in these jurisdictions and any agreements which are reached on a country-by-country basis, secondments from the UK may (depending upon the relevant foreign legislation and rules), result in the possibility of ‘double charges’ for Social Security. This is on the basis that assignments from the UK (where the UK remains the UK legal employer), would result in ongoing UK NIC charges for the first 52 weeks of an assignment. In such cases, employers will need to understand the impact of such double charges on their budget or consider whether any work arounds (e.g. local employment contracts abroad) are appropriate.
6. Employer responsibilities
Where the new Protocol applies, employers should continue to apply to the home country Social Security office on behalf of the employee going to work in the EU or the UK. This will exempt any host country Social Security contributions.
However, where individuals become liable to the host Social Security legislation then the employer will be required to register and pay employer Social Security contributions in that jurisdiction and potentially facilitate the withholding of employee Social Security contributions. Please note that if the employer has no place of business in that jurisdiction then the employee may, by mutual agreement, take on the responsibility for the employer contributions. While relatively common in some of the EU states, HMRC have not traditionally endorsed employees making contributions on their employers’ behalf.
Summary and potential next steps
Currently, there is still some uncertainty for employers (and the self-employed), who may need to work within the EU (or EEA) area over the coming months / years. While additional guidance may be published by HMRC (and the European Union) over the coming weeks / months, businesses should in the short term consider a range of points including:
- What are the additional administrative steps / costs from seconding UK-based people to the EU & how much could this cost from a budgetary and time perspective? Will it be possible to ‘pass on’ these costs on to end clients?
- Are there wider tax planning opportunities that one can consider as an employer, to try and minimise the impact of any additional Social Security costs which may arise in those countries ‘opting out’ of the seconded workers Protocol (and hence be more competitive when quoting for work in Europe)?
- From a wider strategic perspective, should the business review how future assignments and projects in the EU are undertaken? For example, if you have staff based in other EU countries (say Ireland), would it be sensible for them to be more actively involved in European projects (if this is feasible from a skills and experience perspective), as such Irish-based employees may be able to stay in the Irish Social Security regime.
- Review the circumstances of current mobile employees to determine which rules apply to them from 1 January 2021 and ensure you have the correct documentation on file.
- For new moves / arrangements ensure you:
- Identify planning opportunities to reduce costs
- Know where social security should be paid, and
- Understand what documentation is needed.
Would you like to know more?
If you would like to learn more about how Brexit may impact you, please visit our Practical Guidance: Brexit hub here.
And if you have any questions or would like to discuss your specific circumstances, please get in touch with your usual Blick Rothenberg contact or one of the partners on this page.