The holidays are over, but do you know where your employees are?
30 November 2023
If the pandemic demonstrated anything, it was that technology now allows a significant number of employees to work remotely without ever needing to visit their employer’s premises. If an employee does not need to attend their office, then what is to stop them working from home in a different country. The ability to disguise your online location means that it will not always be obvious where an employee is actually physically working.
On the face of it, if the individual is working as efficiently as before, then is there any real issue in allowing them to work outside the UK? The reality is that the employer can find themselves brought into another country’s tax and social security system with all the added expense that that entails.
An individual is usually liable to tax and social security in the country where they physically work. The obligation to operate a payroll in that country may extend to the employer and they may also be liable to employers’ social security there. The employer social security contribution in some countries can be two to three times higher than that in the UK – a significant additional and potentially unexpected cost.
The employee themselves may suffer cashflow issues as the employer will still need to deduct UK taxes from the employee’s pay unless told otherwise by HMRC. Given that HMRC’s turnaround on payroll rulings is particularly slow, initially paying both UK and overseas taxes at the same time could make remote working very expensive for the employee.
In addition, tax authorities around the world are starting to widen their net in respect of what constitutes a tax presence in their country. An employee working from their home office could create a fixed place of business for the employer and give rise to corporate tax liabilities in that country.
With this in mind, employers should consider updating their policies on remote working, being aware that anything other than very short periods abroad may give rise to additional costs and obligations. It should also be made clear to line managers that requests for remote working should not be approved until cleared with the appropriate person under the employer’s policy.
Remote working is here to stay and not being aware of where employees are basing themselves could lead to significant costs to the unprepared employer.
On the face of it, if the individual is working as efficiently as before, then is there any real issue in allowing them to work outside the UK? The reality is that the employer can find themselves brought into another country’s tax and social security system with all the added expense that that entails.
An individual is usually liable to tax and social security in the country where they physically work. The obligation to operate a payroll in that country may extend to the employer and they may also be liable to employers’ social security there. The employer social security contribution in some countries can be two to three times higher than that in the UK – a significant additional and potentially unexpected cost.
The employee themselves may suffer cashflow issues as the employer will still need to deduct UK taxes from the employee’s pay unless told otherwise by HMRC. Given that HMRC’s turnaround on payroll rulings is particularly slow, initially paying both UK and overseas taxes at the same time could make remote working very expensive for the employee.
In addition, tax authorities around the world are starting to widen their net in respect of what constitutes a tax presence in their country. An employee working from their home office could create a fixed place of business for the employer and give rise to corporate tax liabilities in that country.
With this in mind, employers should consider updating their policies on remote working, being aware that anything other than very short periods abroad may give rise to additional costs and obligations. It should also be made clear to line managers that requests for remote working should not be approved until cleared with the appropriate person under the employer’s policy.
Remote working is here to stay and not being aware of where employees are basing themselves could lead to significant costs to the unprepared employer.
