Overseas working: what employers need to know

By Nikki Martin, Senior Tax Manager, Carpenter Box.

The Covid pandemic has changed the way we work. Most employers will find themselves with employees working remotely for at least some of their working time. Working remotely does not necessarily mean working from home: employees may perform their duties from anywhere with a laptop and an internet connection.

Nothing is ever as straightforward as it seems. Employers must consider the tax consequences and employment law issues that may arise if their employees work outside the UK. We provide an in-depth analysis of everything regarding working overseas.

Tax and social security

Firstly, an individual performing substantial duties in another jurisdiction may be subject to local taxes and social security contributions. UK employers operating a UK payroll must know where their employees pay taxes. This is to ensure the correct deductions are made from wages.

Typically, an individual will continue to be liable for UK social security (National Insurance Contributions) for 12 months after ceasing to be a resident. However, that can be shortened or extended depending on the agreement with the country they’ve travelled to.

Further, UK income taxes may be levied on duties performed in the UK, but individuals may not need to pay UK taxes on wages for duties performed overseas. If employees split their time between the UK and another location, the PAYE deductions will get relatively complex.

Depending on the employee’s residency position, the employer may be required to meet compliance obligations. Typically, in the country where the employee is resident and the existing compliance obligations in the country where the employer is based.

Risk of permanent establishment

Secondly, employees working from a home office abroad could create a permanent establishment (PE) in that country for the employer. Having a PE could bring the employer into the scope of corporation tax in the new jurisdiction if the company is not already within the scope.

Historically, concerns around establishing a PE arise if the international employee can conclude contracts on behalf of the employer from their new location. However, in some jurisdictions, a PE can be established simply by setting up a home office. Tax advice is required to ensure employers do not become residents in unexpected places because of their employees’ movements.

The profits attributable to a PE may be subject to corporation tax in that country. Thus increasing filing requirements and exposure to penalties if deadlines are not met. The tax treaty between the UK and the relevant jurisdiction should allow for relief for double taxation on any taxes charged in line with the treaty provision. Very often, the starting rates applicable are not in line with treaty rates. As a result, intervention is needed early on to prevent tax leakage in the form of tax charges for which credit relief is not available.

Local employment rights

Employers must understand any changes in statutory employment rights awarded to employees in a new jurisdiction. In many cases, it might mean that the employee now benefits from rights that are more favourable to the employee than if they were subject to employment law in the UK. Hence, this could come at a significant cost to the employer.

Immigration

As of 1 January 2021, UK nationals no longer have the automatic right to work in other EU member states. If an employee is working within an EU country, the employer needs to consider whether any approvals for immigration are required for them to work within the EU. This may affect working even temporarily.

Health and safety

Employers from the United Kingdom need to consider their health and safety obligations to their employees to ensure they are kept safe and well. This is regardless of where they are physically working. Additional laws may apply to employees working in other countries. As a result, suitable advice should always be sought when setting up in a new location.

Data confidentiality

Controls should be set to protect client data and information and secure in line with laws in the United Kingdom and overseas jurisdictions. This is equally relevant to where they work and travel within and between countries.

Insurance

Finally, business insurance may only cover employees working in the United Kingdom or working overseas temporarily. It would be prudent for the business to review its policies and determine whether any amendments may be required to provide adequate cover for the business. This could come at an additional cost.

Ready to go?

Offering to let employees work overseas would seem simple, but it can present many challenges for the employer.

Additional administrative and financial burdens may arise on the employer and employee. Reviewing all relevant rules and legislation before making the move is the only way to ensure all aspects are considered. The rules and laws vary differently between every jurisdiction, such that a one size fits all approach is not sufficient. The employee should also consider their tax position and any legal issues.

How can we help?

In conclusion, considering the above mentioned risks, we can help you devise a ‘working from abroad policy’. In the event of a permanent move, we can support you and your employee to ensure all aspects are considered from the UK’s and the new country’s perspectives.

If you would like assistance evaluating an employee’s proposal to work abroad and suggesting appropriate employment arrangements, please contact a member of our International team on 01293
227670 or visit carpenterbox.com/international