Remote working and the rise of the ‘I can work from the beach’ employee

The Covid pandemic has fundamentally changed the way we work. With international travel restrictions being lifted, a change in working practices is affording many employees the flexibility to work at a location and country to suit them. With an increasing number of employees working remotely, it looks to be a good time to consider what the impact of these internationally mobile remote workers will have on an employer’s tax obligations.

The dream of working from your laptop by the pool or while watching the sun go down at the beach bar – mojito in hand, is a dream within reach for employees who are now able to work remotely. The benefits are not just one way though, and for employers, it has given them the ability to recruit talent outside of the UK and focus on the employee’s skill set as opposed to their physical location.

While this change of approach to work brings with it many positives, it does mean employers will need to think about the tax footprint being created by employees who are working remotely overseas.

The below case study is a recent typical illustration of the points that need to be considered when employers have internationally mobile employees and how our employment team were able to support them.

Background facts

The employer is in the public sector and has employees undertaking work in countries including the USA, Germany, South Korea, and Australia. These employees are formerly UK employees of the business who now plan to stay in their host country for periods of between one to three years. Our employment team were asked to support with the UK tax implications arising from these internationally mobile employees.

How we were able to help

The starting point for our advice was to consider whether the employee would break their UK tax residency as this will determine the extent of their charge to UK income tax and the employer’s obligations under UK PAYE.

We then worked with the employer to ensure the remuneration package offered to the employee was as tax efficient as possible. Typical elements of a globally mobile employee’s remuneration package can include the provision of overseas accommodation, travel costs between the home and host country being met by the employer (potentially for both the employee and their family), private medical cover, in-country allowances, and relocation costs. Each element of the employee’s package had different tax implications, with the tax charge linked to the individuals’ circumstances and whether the overseas work was being driven by the employer or employee. Typically, where the posting overseas is driven by the employer, the support package given to the employee is more encompassing.

UK national insurance and the host country social security charge are considered separately from the income tax implications, so both sets of rules need to be considered.

For social security purposes, the world is divided into three areas: the EEA, reciprocal agreement countries (such as the USA) and countries where the UK has no agreement. As well as the employer needing to understand the differing social security costs, the employees were also keen to understand to which country their social security contributions are being paid and the impact this would have on their entitlements to a UK state pension and other state benefits.

No two internationally mobile employees are the same and each employee will have their own concerns and questions specific to their circumstances. In the above case, we were able to provide the employees with ‘exit meetings’ to give them the opportunity to ask our specialist team any questions they had ahead of the posting.

Once the income tax and social security implications were established, we were able to support the employer’s HR and payroll team to submit the required applications to HMRC, ensure the appropriate adjustments to the payroll were applied and that the additional compliance was as simplified as possible.

As well as establishing the UK implications of each employment, we were able to put the employer in touch with local advisors in each of the host countries to ensure the in-country implications were also considered.

In addition to the employment tax advice supplied, our wider corporate team and the local country advisors were able to confirm the wider corporate tax implications for the employer in having an employee working overseas.

Following the initial advice provided, we will continue to support the employer and its employees with ongoing tax support, such as the additional year end filings obligations to HMRC.

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