Before the UK left the European Union, the posting of UK employees to other EU countries was relatively common. Without the pandemic, perhaps this would have decreased after ‘Brexit’ but, instead, we have seen a marked increase in appointments of overseas posts, be it UK nationals choosing to head out of the UK as border controls relax, or even the recruitment of local labour in overseas markets.
Payroll-tax specific rules have not changed significantly following 1 January 2021. The general rule is that most countries will expect a worker to pay taxes in the country where the work is carried out, and provided that the only duties performed in the UK are ancillary (occasional training or meetings), HMRC will not expect that person to pay tax through PAYE.
National Insurance (NI) in the UK or social security in the overseas country is, however, a different matter.
Working in the EU
Where “detached worker status” applies, it will continue to be possible for a UK worker to pay NI in the UK, rather than the country where the duties are performed. A detached worker is generally someone working for a company with a UK base, but the duties are performed overseas (the host country).
Initial fears that this provision would not carry into 2021 were allayed when all EU member states confirmed they wished it to continue. This was not published until February 2021 and will make temporary postings to the EU more attractive to UK based individuals. Paying UK NI is set at a maximum of two years (at which point the employee would transfer to local social security instead), although historically, some states have allowed longer. Whether extensions will continue or not is too early to say.
The opportunity to continue paying national insurance rather than foreign social security is not automatic, and a certificate or portable document must be applied for in advance. Failure to do so could mean NI and social security is due on the same income.
Working in Iceland, Liechtenstein, Norway or Switzerland
The continuation of EU rules has not “grandfathered” to the wider EEA members (including Switzerland). In some cases, the NI/social security relaxations will only apply if the appointments started on 31 December 2020 or before, if the EEA-EFTA Separation Agreement covers the workers circumstances, and by application to HMRC. All exemptions require a certificate first, and applications can be time sensitive. Further, the duration of the exemption depends on which state the employee is posted to. We would be delighted to advise in more detail on country specific circumstances.
What about countries outside the EEA or Switzerland?
Most UK workers posted to other countries will pay social security in the host country as soon as their posting starts, and also have to pay UK NI for the first 52 weeks too.
Countries with a social security agreement
Certain “rest of the world” countries have agreed with the UK that it is necessary to only pay social security in the host country. These include such jurisdictions as New Zealand, USA, Channel Islands, Isle of Man and Canada, but notably, Australia and most middle and far eastern countries are excluded. In practice, by a state signing the agreement, no NI deductions are necessary for overseas workers.
Republic of Ireland (ROI) and the Common Travel Area (CTA)
A mutual agreement (the CTA) between the UK and ROI predates the EU by decades and contains many “free movement” type provisions. One such provision is a guarantee that social security/NI does not have to be paid in both states, and that all existing associated arrangements will continue as before the UK’s exit from the EU. This means that for postings to ROI of less than two years, an employee need only pay NI in the UK. Postings of greater than two years will mean that social security will be paid in ROI rather than NI.
Maintaining an NI record
NI is often considered tax with another name. Whilst taxation supports the Treasury overall, NI has a direct bearing on an individual’s welfare, in particular providing access to state pension on retirement. Paying social security overseas will not provide a credit for state pension purposes (reducing the pension), but in most cases it should be possible to make voluntary NI contributions to ensure that a worker’s UK state pension is updated each tax year. This can be as low as £3.05 per week (as at 2021/22), and application can be made directly via HMRC’s website. Financial advice should be taken from an Independent Financial Advisor first to ensure it is right for the worker in question. Hazlewoods Financial Planning would be delighted to assist.
‘Brexit’, the pandemic and the global nature of business for all sizes of enterprise has made payroll and employee remuneration more complicated than ever, and early action is essential to ensure overseas and UK compliance is dealt with efficiently. At Hazlewoods we can provide you with advice on all payroll matters and introduce you to overseas member firms in our HLB International network for expert tax advice in the host country.