Remote working abroad: what are the risks for UK employers?
Following the increase in remote working during the Coronavirus pandemic, we have seen it become commonplace for companies to allow their employees to live and work abroad in a country other than the one they are primarily employed in.
Whether these overseas remote worker arrangements are temporary or part of a new long-term way of working, tax and legal risks arise for both the UK employer and employee. These risks are manageable with advanced planning and expert advice from Moore Kingston Smith.
The main issues for remote working arrangements are considered below.
Income tax
A common misconception is that an employee hired and paid by a UK business is only subject to UK income tax on their earnings. In fact, unless the employee is protected by a double tax agreement, the employee’s earnings can also be subject to income tax in the country where they physically perform their duties.
The starting point is to consider where the employee is tax-resident and if there is a comprehensive double tax agreement between the UK and the other country. Broadly speaking, where an employee remains UK-resident and the days spent in the other county do not exceed 183 days in a prescribed 12-month period, no tax should be due in the other country. Other conditions apply and the employer should check the terms of the double tax treaty in place.
For longer-term remote working arrangements or employees that work in a country for which the UK has no comprehensive double tax treaty, tax is likely to be due in the other country, even when the employee’s earnings remain subject to UK tax.
A multitude of income tax scenarios can result from overseas remote working arrangements. Some of the most common are summarised below. The table is not exhaustive, but it does provide the most likely outcomes based on our experience advising companies on their remote worker arrangements.
Social security
It is often assumed that the social security position will follow the tax position. However, social security is determined under separate rules and a social security liability may arise even when there is no charge to income tax.
The starting point is to consider whether the other country where the work duties are performed remotely is in:
- the EU
- a reciprocal-agreement country or
- somewhere else (i.e. a non-agreement country).
For remote working in the EU and countries that have a social security reciprocal agreement with the UK, social security is usually due in the country the work is performed. However, for short-term remote working arrangements, it may be possible to apply for a certificate of coverage so that social security is only due in the UK.
Brexit has complicated the position in EU countries. Depending on when the remote working arrangement commenced, employers will need to consider either the pre-1 January 2021 EU social security regulations or the new EU protocol that applied from 1 January 2021.
Employer responsibilities and further risks
Payroll obligations
International employee payroll withholding failures often cause the highest financial exposure for an employer. Where a liability to tax or social security arises in the other country, the employer may be required to withhold the tax and social security (e.g. by operating a local payroll in the other country).
Permanent establishment risks
Corporate tax and VAT liabilities as well as other reporting requirements may arise for the employing business where a permanent establishment is inadvertently created by virtue of the employee working remotely in an unplanned location. There is a need to review the potential impact of changes to the employee’s roles and responsibilities to ensure that a permanent establishment has not been created inadvertently.
Immigration and local law
Work permits must be in place, otherwise both the employer and employee face penalties and potential expulsion from the country they are working from. Employers may not have been aware of the overseas remote work and it is possible that no work permits may have been applied for in the other country.
Employees working overseas will also bring about compliance with the country’s local labour laws. Employers must ensure they adhere to working time requirements, leave and overtime entitlements, and many more aspects.
Tracking
It is crucial that employers track the movements of their employees to manage these tax, immigration and legal issues. New tracking systems may need to be implemented to replace existing systems if they are not sufficient.
Getting the right advice
The above is only a guide, and expert tax and global mobility advice is required to navigate the complex situations that result from the above issues. The Moore Kingston Smith Global Employer Services team is expert at assisting employers with matters relating to international workforces.
Remote worker solutions include:
1. Remote working policy documents
Working with an organisation to produce a remote working policy document will typically include rules around:
- which employees are eligible,
- what countries an employee is permitted to work in and
- the duration of remote working period.
2. Reporting advice
Our team will work with both employers and employees to provide advice for UK tax, UK social security and UK reporting.
3. Global taxes
Through the Moore Global Network, we can provide guidance on taxes, social security and reporting advice in the country the employee will work remotely from.
4. Compliance support
Moore Kingston Smith’s compliance services cover the UK and overseas, helping with things like payroll administration, applications for certificate of coverage and registration with relevant tax authorities.
5. Avoid permanent establishment
Permanent establishment refers to a business that has a steady and taxable presence in a foreign country. Employing remote workers could put you at risk of paying taxes to multiple countries, but Moore Kingston Smith can offer advice on mitigating permanent establishment in another country.
6. Employment contracts
Any employment contract needs to be legally sound to protect both the employer and the employee. Our specialist HR consulting teams can help organisations adapt or produce new employment contracts to reflect remote working arrangements.
We also advise non-UK businesses that hire an individual to work remotely from the UK. For more information, please contact us.