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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 order to attract and retain talent. As a result, a growing trend in a post-Covid world is for employers to have more globally mobile employees working from overseas locations.
However, having even just one employee working abroad can trigger numerous tax and regulatory obligations that employers should beware of.
Why does it matter?
Different countries have their own domestic tax rules and employers often mistakenly assume that if an employee is not spending too many days overseas or if they are still on the payroll, subject to UK PAYE and National Insurance, then that is enough.
Sometimes even one day of work overseas can trigger tax consequences for the employer and/or employee. A one-size-fits-all approach does not work, so tailored tax advice, both in the UK and overseas, is a prerequisite.
Many tax authorities are waking up to the potential tax revenue from business travellers and remote workers, with the onus often falling on the employer.
Key tax issues
A company may have employees who were previously based here and are now choosing to work remotely from another country, with or without return UK workdays. As a result, the employer may have overseas employer registration, payroll, withholding tax and social security obligations – alongside similar employment tax obligations in the UK.
It is also possible that the employee’s activity – even simply working from a home office – could trigger corporation tax implications for the UK employer by virtue of having a permanent establishment in the country in question. If so, the company could become liable to local corporation tax on any attributable profits.
Corporate tax residence issues could also result where directors are based overseas. Non-tax issues can also arise, such as overseas employment law implications, visas, insurance and data processing.
Double taxation (tax obligations both in the UK and overseas) issues require careful consideration. Whilst it is usually possible to minimise double tax charges, cash flow can be impacted as a result of withholding tax obligations in both the UK and overseas, and delays between paying tax and claiming the relief.
Any non-compliance could result in penalties and/or the employer and its workforce being sanctioned and prevented from doing business in the country, alongside the costly implications of regularising both the employee and employer’s overseas tax positions.
It is important that employers track any internationally mobile employees to avoid any inadvertent tax or legal implications in the UK, overseas or both. Many tax authorities are waking up to the potential tax revenue from business travellers and remote workers, with the onus often falling on the employer. The key message is to keep track of employees and their whereabouts, and if in doubt seek specialist advice.
PKF Francis Clark has a team of international tax specialists based across the region. Working in partnership with our colleagues around the world in the PKF Global network, we can help employers ensure they stay on top of any overseas tax implications.
Find out more about advice for employers operating overseas and employees working abroad.