The three key aspects are cost (financial impact on the business and the employee), technical complexities (interaction of international tax and social security rules) and policy (application of assignment policies to ensure consistency but also tax efficiency).
There are several steps to consider when putting together the compensation package of an assignee:
- Will the individual’s affordability be impacted?
- Are they going to a location where they will face additional challenges e.g. political instability?
- What is the host country’s tax regime?
- Are their tax reliefs available? You may find our article on the Top 10 ways to reduce tax when coming to work in UK useful
We can put together estimated calculations for you to understand the difference in the cost of living between the home and host locations, to help you work out an appropriate allowance for your expat or estimate what your expat’s net pay will be.
The UK tax system is complex. As such, an expat’s UK tax position should be carefully considered for a number of reasons:
- The UK tax authorities do not accept misunderstanding the rules as a valid reason for getting it wrong. Find out more here .
- UK payroll reporting is done on a real time basis. Expatriates who remain on their home country payroll and are required to be on a UK payroll can be included on a special payroll arrangement. Find out more here.
- We are seeing companies move away from the traditional expat secondment. Remote working is becoming increasingly common. However, this arrangement comes with risks. Click here to read more
- UK income tax relief can be claimed for employee and employer contributions made to certain foreign pensions. However, the tax relief claim is restricted based on income level.
- Expatriates who have deferred compensation are required to report and pay tax and social security in the UK on at least the gain that relates to the period they work in the UK. Click here to read our insights on Employment Related Securities.
- Employees no longer have to go on assignment, and where possible employers now encourage them to travel to the UK for work. International business travelling comes with risks. Find out more here.
Companies that have more than one expatriate should consider whether to put in place guidelines on the following to not only ensure consistency but also manage costs and expectations:
- Expenses policy
- Expatriate benefits
- Support in host location for expatriates e.g. filing of tax returns
- Support with relocation e.g. shipping, home search, school
Five key questions to consider
We suggest there are five key tax-related questions to consider with any international assignment:
- Where will income tax be due?
- Where should employer and employee social security tax be paid?
- What employer payroll and reporting obligations are there?
- What is the assignment policy and terms?
- How much will the assignment cost?
We consider each of these during the main phases of the assignment:
For more information, please contact your usual Blick Rothenberg contact or get in touch with one of our experts whose details are to the right.