The Covid pandemic has fundamentally changed the way we work, affording employees the flexibility to work at a location and country to suit them. Equally, it has given employers the ability to recruit talent outside of 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 client case study is a recent typical illustration of the points that need to be considered when employers have globally mobile employees and how our employment team were able to support them.

Background
MO is a public sector employer who had a variety of projects being undertaken in the USA, Germany and Australia. To ensure the projects were successful, MO needed to send existing UK employees to each country for periods of between one to three years. Our employment team were asked to support MO with the UK tax implications arising from the postings.

Our involvement
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. We then worked with the MO to ensure the remuneration package offered to the employee was as tax efficient as possible. Typical elements of a globally mobile employees 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 individual circumstances of the posting.

UK national insurance and the host country social security charge are considered separately from the tax implications. 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 MO needing to understand the difference in social security costs for each of the postings, the employees were also keen to understand where their contributions are being paid to ensure their entitlements to state pensions and other state benefits are going to be impacted.

Overseas postings will often result in employees having questions specific to their circumstances and in the case of MO, we were able to provide the employees with ‘exit meetings’ to give them the opportunity to ask our specialist team any questions they have ahead of the posting.

Once the income tax and social security implications were established, we were able to support MO’s HR and payroll team to make the required applications to HMRC and make the appropriate adjustments to the payroll.

In addition to establishing the UK implications of the posting, we were able to put MO in touch with local advisors in each of the host countries, to ensure the in-country implications were considered.

In addition to the equivalent employment tax advice being needed, the local advisors were able to confirm the wider tax implications for MO in having an employee in each country.

After undertaking the initial advice, we were able to support both MO and its employees with any ongoing tax support, such as assisting the employee with the submission of their UK tax returns and supporting MO’s payroll team with their HMRC year end filings.