After many months of speculation, the UK and the EU finally agreed a post-Brexit trade agreement to apply from 1 January 2021 onwards. An important component of the post-Brexit UK/EU trade agreement is the rules around social security contributions for employees who spend time working across the EU.
This article summarises the agreement from a social security coordination perspective and highlights the practical and administrative actions that employers of globally mobile employees should take now.
Our article on 16 November provides a brief summary of the previous social security coordination rules that applied before the end of the Brexit transition period.
Individuals working across the EU and EEA prior to 31 December 2020
The terms of the Brexit withdrawal agreement will continue to apply to individuals who were working in another EU or EEA country up to 31 December 2020.
In summary, the social security position of UK employees who were working in another EU or EEA location before 31 December, or for EU/EEA employees who were working in the UK, will broadly continue to be as follows:
- Social security contributions will continue to be due in the employee’s home country, with them being exempt from paying social security in the host location.
- A UK employee working in an EU/EEA country before 31 December 2020 would continue to be liable to UK National Insurance on their earnings and be exempt from paying social security in the host location. The same approach would apply for EU/EEA nationals who were working in the UK before 31 December 2020.
- Existing Forms A1 will continue to apply and be valid for these individuals and should be obtained retrospectively if not yet in place.
- Forms A1 can continue to be obtained for 24 months with scope to extend the period of these (or any existing Forms A1) where mutually agreed by the relevant home and host countries. Typically, extensions can be granted to extend the 24 months to a five-year period.
- Obtaining extensions will be dependent on there being no significant changes to the nature of an individual’s assignment.
Individuals working across the EU and EEA from 1 January 2021 onwards
UK individuals working across the EU and EU individuals working in the UK from 1 January 2021 onwards will be governed by the terms of the social security coordination protocol as set out in the new trade agreement.
The rules of the agreement are broadly similar and consistent with the previous ones. In summary, the main updates to the rules are as follows:
- EU countries needed to opt in by 1 February 2021 to confirm that the new rules apply to their location. HMRC have now confirmed that all EU member states did decide to opt in by this date.
- The period for which an individual can remain within their home country social security scheme will be set to a maximum 24-month period. It appears that there will be no scope to extend this for up to five years as there was previously.
The new rules apply from 1 January 2021. Forms A1 can be applied for to confirm that an employee (who is on assignment from 1 January 2021) will remain in their home country social security scheme and be exempt from social security contributions in the host location for up to 24 months. For example, a 24 month Form A1 could be obtained for a UK employee working in Sweden to confirm their continuing liability to UK National Insurance and exemption from Swedish social security for that period.
The rules for individuals who work simultaneously between the UK and other EU locations also remain broadly the same. Such individuals are known as multi-state workers. In these circumstances, social security would usually be due in the country in which the individual resided, if they spent at least 25 per cent of their time working there. This position would again be dependent on the relevant EU locations opting into the agreement.
Individuals working in Norway, Switzerland, Iceland and Lichtenstein from 1 January 2021 onwards
The social security position for UK individuals working in Norway, Switzerland, Iceland, Lichtenstein and individuals from those locations working in the UK from 1 January 2021 onwards will not be covered by the above EU rules.
HMRC has said that the following rules will apply to assignments to/from these locations based on existing and historical social security agreements in place:
- Norway: Social security contributions can continue in the home location with exemption from social security in the host location for up to 36 months. A certificate should be obtained from the home location to confirm the position.
- Switzerland: Social security contributions can continue in the home location with exemption from paying social security in the host location for up to 24 months. A certificate should be obtained from the home location to confirm the position.
- Iceland: Social security contributions can continue in the home location with exemption from paying social security in the host location for up to 12 months. A certificate should be obtained from the home location to confirm the position. The certificate can be extended by a further 12 months provided this is obtained prior to the end of the first 12 months of the assignment.
- Lichtenstein: No existing agreement is in place and the position will need to be considered on a case-by-case basis.
EU employers with employees subject to UK NIC will still be liable to account for employers’ NIC even if they have no tax presence in the UK.
UK employers with employees subject to EU social security may be required to account for employers’ social security in the home country, although some countries allow for the employee to account for both employee and employer social security.
Practical considerations and actions required
If you have globally mobile employees who may be affected by any of these rules, we recommend taking the following actions now:
- Ensure that Forms A1 are in place for any assignments that began before 31 December 2020. Apply for these urgently where they’re not yet in place.
- Consider the length and costs of any new EU assignments given the maximum 24-month coverage period.
- Consider the potential interaction with the Posted Workers Directive in terms of local country requirements to have Forms A1 in place for any assignments.
- Pay attention to assignments to/from Norway, Switzerland and Iceland and the arrangements for those locations.
- Review any Lichtenstein assignments.