The last two years have seen an unprecedented amount of home working, as employers of all sizes have either been encouraged, or forced, to allow their staff to operate from home offices.
The realisation that home working has commercial and lifestyle advantages for all parties has led to a stepped change in workplace adjustments and recruitment, such
that international borders are no longer seen as the barrier they once were. However, where the country of residence of the employer is different from that of the employee, there can be significant complications.
Foreign employee working in the UK
An employee who works in the UK for an overseas employer must pay tax and possibly national insurance (NIC) through pay as you earn (PAYE). A common mistake
made by foreign employers is to assume that no tax is payable in the UK, provided the employee remains on the payroll of the home country. There are certain relaxations for short term visitors to the UK, but generally AYE must be operated and tax paid in the UK. If there is no UK presence at all (apart from the employee), the legal responsibility for the correct operation of payroll will usually rest with the employee. This may be an unacceptable risk for that individual and consequently the employer, so care must be taken.
Relief from operating PAYE may be available under the double taxation treaty with the territory in question. The NIC provisions do not mirror taxation though, and
if a social security agreement exists, or the individual is from the EU, there may be a temporary exemption, although documentary evidence from the taxation authority is required.
UK employee working overseas
Similarly, most countries will expect a UK worker to pay tax and social security wherever the duties are performed. Provided all work duties are performed overseas, HMRC will accept that no tax needs to be collected via the UK payroll, but agreement from them should be sought.
Where a social security agreement is in place with the other country, or if it is in the EU, the employee may continue to pay NIC in the UK for a set period of time rather than overseas, to keep their UK contribution record up to date. After that, it is usually possible for them to make voluntary NIC payments at a reduced rate. Conversely, if the country does not have a social security agreement, or is not in the EU, then NIC will have to be paid for 12 months through the UK payroll. In most cases, a UK employer will need to appoint a payroll agent in the employee’s country of residence to operate a payroll scheme under local tax rules, and make timely
payment of deductions to the taxation authority.
Other considerations
The UK’s exit from the EU has meant that it cannot be assumed that a UK employee may simply relocate to another country for work. Non-tax matters such as work
permits, registering for local taxes and permission to reside (to name just a few) should be considered.
Individual solicitors looking to work from abroad may also need to register as a foreign lawyer or foreign legal consultant.
We have helped many clients to understand and navigate the complexities involved in working overseas. If you would like to know more, please contact Director,
Glenn Collingbourne.