EU social security and a no-deal Brexit

10 October 2019

Current EU rules ensure employers and their cross-border workers only pay social security contributions (such as National Insurance contributions, or ‘NIC’) in one country at a time. However, in the event of a no-deal Brexit, the coordination between the UK and the EU is set to end. This has the potential to create significant problems for businesses with an internationally mobile workforce. As with much of Brexit, the final position is not yet known. There are, however, one or two things businesses can do to prepare.

When an employee relocates from one EU country to another, or works in more than one member state, they rely on the EU social security agreement to avoid a dual liability to social security contributions. In the event of a no-deal Brexit, this agreement will no longer apply.

The UK has drafted contingency legislation under which the UK would continue to apply EU coordination principles unilaterally in the event of no deal, but it is unclear how such a system would operate without the agreement of each individual member state. In the worst-case scenario, a dual liability would arise.

What is clear at this stage is that employees and employers must continue to pay National Insurance contributions (NIC) in the UK until the end date on any existing certificate of coverage. This creates a dilemma for upcoming assignments to EU countries: if a standard A1 application is made, UK NIC will continue to be payable for the duration of the certificate with no guarantee of a corresponding exemption in the host country.

Existing EU regulations potentially permit a different approach, but there are several factors to take into consideration, starting with the impact on social security benefits. The preferences of employee and employer will not always be aligned. The ultimate impact of any decision will depend on when Brexit happens and whether or not an agreement is reached.

HMRC have recently written to certificate holders who hold an A1 certificate issued by the UK to warn them they may need to pay social security contributions in the country where they are working, as well as in the UK. HMRC advice is to contact the relevant EU, EEA or Swiss social security authority to determine whether a liability will arise.

Under a new UK-Ireland agreement signed earlier this year, the position of UK / Irish nationals working in the UK / Ireland will not change after Brexit. Employees and employers will not need to do anything different. The same goes for Switzerland. Although the UK has legacy agreements with several more EU countries, it is not clear whether these older agreements will be resurrected in the event of a no-deal Brexit. Given the time that has passed since these agreements were signed their terms may be ill-suited to modern working practices and several countries have already indicated that the agreements will not be allowed to re-enter into force.

A replacement for the A1/E101 form will be issued for new applications after Brexit. The purpose of this form is to enable employees to continue to make UK National Insurance contributions, but as mentioned above it is not clear that this will be the optimal approach in all cases.

For EU nationals working in the UK, the guidance is more positive but light on detail: “You will not need to pay UK NIC if you’re employedmainly in one or more EU, EEA countries or Switzerland but carry out limited work in the UK and you meet certain conditions.” Definitions and clarifications are sorely needed. As things stand, however, UK domestic rules that currently apply to assignments between non-agreement countries outside the EU are not expected to apply to EU assignments, post-Brexit, so there will be a new process with which businesses will need to familiarise themselves.

What action can employers take?

  • Assess your internationally mobile workforce to identify the extent of the problem with intra-EU assignments.
  • Contact EU social security authorities to determine the extent of any liabilities.
  • Consider how best to deal with the social security position of new assignments between the UK and EU countries.
  • Keep up to date with developments, for example by signing up for HMRC email alerts.
  • Communicate with your employees.

With 31 October 2019 fast approaching, businesses are already planning for the potential impact of a no-deal departure on their business, workforce, supply chains and VAT requirements. Employers with an internationally mobile workforce should add a review of social security obligations to their checklist. This will help them assess the potential impact of a no-deal exit and allow them to take action if this happens on 31 October.

If you would like to discuss your options, one of our expatriate tax advisors would be happy to talk to you about managing the social security implications of Brexit and how best to prepare.