This article was first published in South West Business Insider magazine. Many employees now expect a flexible work environment and employers are having to cooperate in…
Having just one employee working overseas, a continuing trend in a post-Covid world, can trigger numerous employer tax and regulatory obligations in the relevant overseas jurisdiction. It is important that UK employers track any internationally mobile employees to avoid potential financial penalties and sanctions.
We are continuing to see a movement away from the typical longer-term assignments on the global mobility scene. These can be, in comparison, remarkably more straightforward than the increasingly common shorter-term flexible working and remote working arrangements. We expect the trend of international remote working to continue as, heightened by the Covid-19 pandemic, employees are reconsidering where they need (or want) to be to perform their employment duties. Many employees now expect a flexible work environment and employers must cooperate in order to attract and retain talent. As a result, UK employers tend to have more globally mobile employees working from overseas locations.
It is critically important that employers keep track of where their employees are working from in order to avoid any inadvertent overseas tax and/or legal implications. In addition, many tax authorities are awakening to the potential tax revenue from business travellers and remote workers, with the onus often falling on the employer.
A key issue is that different countries tend to have their own domestic tax rules (alongside the relevant double tax agreement with the UK, if relevant) and employers often mistakenly assume that if the employee is ‘not spending too many days overseas’ or if the employee continues to remain on UK payroll, subject to UK PAYE and National Insurance, then that is enough. More often than not this is not the case. Sometimes only one day of work overseas can trigger overseas tax consequences for employer and/or employee. A one-size-fits-all approach does not work for global mobility – tailored tax advice is a prerequisite. For example, an employee of a UK company may be required to travel to various countries as part of their role. It is possible that the employee’s presence could trigger tax consequences in each location, regardless of the short term nature of their stay.
Similarly, a UK company may have a previously UK-based employee choosing to work remotely from an overseas location, with or without any return UK workdays. The employer may have overseas employer registration, payroll, withholding tax and social security obligations – alongside similar employment tax obligations in the UK. There is also the potential that the employee’s activity overseas (even by simply working from a home office) could trigger corporation tax implications for the UK employer by virtue of having a permanent establishment. The employer should also consider non-tax issues, such as (note this is not an exhaustive list) overseas employment law implications (the employee could now fall under the employment law of the overseas country), visas (does the employee have the right to work overseas?), insurance (does the employer’s policy covering employees working overseas?) and data processing.
Double taxation (tax obligations in the UK and overseas) issues require careful consideration. Whilst it is usually possible to minimise double tax charges, negative cash flow implications 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). Any non-compliance could result in penalties charged on the UK employer and/or a business (and its workforce) being sanctioned and not permitted to conduct business in the foreign country, alongside the costly implications of regularising both employee and employer overseas tax positions, working with an overseas tax advisor.
The global mobility landscape is becoming increasingly tricky to navigate, a problem compounded by recent events, and is an area where many employers inadvertently fall foul of their compliance obligations – be it in the UK, overseas or both. The key message is to keep track of employees and their whereabouts, and if in doubt seek specialist advice.
Advice on global mobility issues can be obtained from PKF Francis Clark’s International team and we have associate PKF firms in most overseas jurisdictions to obtain overseas tax advice from. If you would like more information, please contact Steve Ashworth or Tamara Beach.