Global Mobility Services
Employees are essential to the success of any business, and in an increasingly connected world, employers need to maximise their people in order to remain competitive and thrive.
Remote and cross border working has become the norm and employers need to manage their UK and overseas tax obligations as well as ensure that they provide the best working environment to attract and retain talent.
What is global mobility?
What does this mean for employers?
What does this mean for employees?
The interaction between host and home country tax and social security obligations also needs to be considered alongside the availability of any reliefs to simplify any international compliance obligations as far as possible. For example, this might include obtaining a ‘portable document A1’ for individuals to stay within the scope of UK National Insurance and outside overseas social security whilst temporarily working overseas.
What are the risks?
There are many potential risks associated with having a globally mobile workforce. These include, but are not limited to:
- Permanent establishment – inadvertently establishing a taxable presence of the employing company in the host jurisdiction and potential exposure to the host’s corporation tax regime. This could include, for example, working from a home office overseas
- Withholding tax and payroll compliance – the home employer having overseas employment tax and social security compliance obligations such as registering as an employer, running a local payroll, applying local withholding tax and (employee and employer) social security
- Personal tax implications for the employee – the employee becomes tax resident in the host jurisdiction (e.g., under the Statutory Residence Test if an overseas employee working in the UK) and exposes their worldwide income to local income tax
- Double Tax – employees may find themselves subject to tax in their home and in the host country on the same income. Whilst it usually possible to minimise double tax (but not always), negative cash flow implications for the employees often arise as a result of withholding tax obligations in both the UK and overseas and in delays from tax payment to submission of claims for relief (e.g. on the home country tax return). The employee could be worse off because of their time working overseas
- Social security – must be considered separately to UK income tax and, if no action is taken, double social security charges could apply. The UK has reciprocal social security agreements with most (but not all) countries
- Directors – UK companies with overseas directors often fall foul of the stringent UK tax compliance rules for ‘non-resident directors’ where said directors are visiting the UK, even for one day/meeting a year
- Expenses and benefits – any expenses and benefits provided or paid for/to a globally mobile employee may also be subject to the home and host country’s tax and social security unless a specific exemption applies. There may be associated reporting obligations
- Penalties and/or interest – where the host jurisdictions tax rules have not been properly adhered to, the employing entity (and/or the employee) could face penalties and/or interest for any non-compliance. This could also have knock on reputational impacts
- Non-tax issues – there are also a variety of non-tax issues to consider such as overseas employment law, immigration, insurance, data processing implications
Frequently Asked Questions (FAQs)
The short answer is yes. It doesn’t matter whether the employee is working from their own overseas home or in an overseas office, the employment tax implications will be the same. The legislation is designed to look at where the employees’ duties are physically being performed.
Based on HMRC’s ongoing consultations, we are expecting a change to the existing legislation in the near future as this is clearly outdated in today’s increasingly international world.
This will depend on where an individual is working, how long for and what they are doing. Under the OECD model tax convention (which most of the UK’s double tax treaties are based on), employment income may remain taxable in the UK (and avoid overseas tax), for a UK treaty resident individual (this will need to be established) if they:
- Spend no more than 183 days in the overseas location over a rolling 12-month period
- Their remuneration is paid by an employer that is non-resident in the host jurisdiction
- Their remuneration is not borne by a permanent establishment of the employer in the host jurisdiction
The above doesn’t not automatically apply and there are many nuances. Advice from an experienced Global Mobility professional should always be obtained in the first instance.
A1 certificates are usually issued by an individual’s home tax authority which provides formal evidence that the individual should remain within the scope of their home social security system and outside that of their temporary working location. A1’s are issued by most EU countries and the UK and are usually only issued for a maximum of two years. There used to be scope to extend this to five years but this no long applies post Brexit.
Tax advice should be obtained in when making an A1 application as the relevant social security legislation needs to be explained.
A section 690 (‘S.690’) Direction is an agreement, obtained by employers from HMRC, to operate PAYE on an employee’s earnings for work in the UK if they are non-resident, UK resident but treaty non-resident or UK resident but entitled to Overseas Workday Relief.
S.690 Directions are essentially a relaxation of the UK’s stringent PAYE regulations and are usually obtained where an employee works both in the UK and overseas. Once obtained, the employer can operate PAYE only on the proportion of earnings that relates to the employee’s UK based work. HMRC issues a S.690 notice specifying the proportion, as a percentage value, that should be treated as UK income. The employee’s earnings are split between the amount that is subject to UK PAYE and the amount that is not.
How can we help?
Our global mobility specialists take the time to understand your businesses objectives, aligned with those of your employees, and we will help you navigate the complex world of international employment tax.
As a member of the PKF International network, the 15th largest accounting network globally, we have access to taxation experts in over 220 firms in 150 countries, we can ensure that you and your employees receive the appropriate advice internationally.
We provide hands on support to employers and employees alike, to help make what might be a daunting prospect of moving to another country as simple as possible.
Advice should be sought before any cross-border working begins – and we can help to:
- Review the current and expected UK tax residency position of the employee and the Statutory Residence Test
- Identify and assist with the company’s employment tax obligations:
- Withholding tax
- Social security
- The wider corporate issues
- Permanent establishment
- Corporate residence
- Help the employee understand their personal tax obligations and providing practical support
- Provide advice and assistance with obtaining relaxations of strict withholding tax and social security requirements, for example:
- Obtaining section 690s
- Appendix 4 ‘STBV’ agreements
- A1 forms
- Certificates of coverage
- Assist with multi-country compliance and reporting requirements for both employer and employee
- Advise on the tax consequences of a UK company engaging foreign-based directors
- Assess tax efficient international expenses, benefits and relocation packages
- Prepare and submit applications to obtain HMRC agreement for international employment tax and social security matters
- Liaise with our colleagues in the PKF network to help ensure overseas tax compliance
We can also make referrals to reputable employment law and/or immigration specialists where required.
For more information on UK employment tax compliance issues, tax efficient ways to recruit, reward and retain staff and our outsourced payroll services visit our Employer Solutions Hub now.