Working Remote Tax Implications in the UK
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Working Remote Tax Implications in the UK

Introduction

When lockdown provisions were imposed at the height of the pandemic, the use of technology-enabled office staff to work productively from home, the number of employees looking to extend their vacations and work remotely has increased in the aftermath of the pandemic, raising concerns for company tax departments about whether UK employees working abroad are subject to income tax and social security outside the country. The large-scale shift to hybrid working for employees occurred in a matter of years, and it is not surprising that the tax system has not kept up with these changes.

The taxation of UK employees working from home or abroad are scrutinised more closely as the Office of Tax Simplification, an independent adviser to the UK government, launched a consultation into how businesses are adapting to the rise of hybrid and remote working. A popular misunderstanding is that an employee hired and paid by a UK business is only taxed in the UK on their earnings. In fact, unless a double taxation agreement protects the employee, the employee’s earnings may be subject to income tax in the country where they perform their duties. The first step is to consider where the employee is a tax-resident and whether the UK and other countries have a comprehensive double tax treaty.

In general, no tax should be due in the other country if an employee remains UK-resident and the days spent in the other country do not exceed 183 days in a prescribed 12-month period. Other conditions apply, and the employer should review the terms of the applicable double tax treaty. Longer-term remote working arrangements, or employees working in a country with which the UK does not have a comprehensive double tax treaty, will almost certainly result in tax being due in the other country, even if the employee’s earnings remain subject to UK tax. A variety of income tax scenarios can arise as a result of overseas remote working arrangements. Some of the most frequent are listed below:

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Income tax outcome When this outcome may arise 
The employee remains subject to UK tax only on their earnings Where the remote working period is short-term (i.e. less than six months) and the employee is protected by a double tax treaty 
The employee remains subject to UK tax but is also subject to tax in the other country (with a foreign tax credit claimed in UK) Where the remote working period is medium-term (i.e. more than six months) but not long enough for the employee to break UK residence 
The employee ceases to be subject to UK tax, and only tax in the other country is dueWhere the remote working arrangement is long-term such that the employee moves out from UK residence and acquires residence in the other country
The employee is subject to foreign tax and is also subject to UK tax (with a foreign tax credit claimed in the other country) Where the remote working arrangement is long-term but the employee performs some workdays back in the UK (e.g. short business trips) 
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Working Remote Tax Implications in the UK

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Working temporarily abroad has tax and social security implications

From a UK perspective, unless the expected duration of the stay is so long that it may affect tax residency, the UK employer should continue to deduct income tax under the Pay As You Earn (PAYE) system in accordance with the employee’s PAYE code, even if the employee is temporarily working abroad. Furthermore, the employer should continue to deduct and pay employee National Insurance Contributions (NICs).

If the employee becomes a tax resident in the host country, income tax may be due

To begin, the host country has primary taxing rights over the employee’s employment income earned while physically working in that country. However, if the UK and the host country have a DTT, the employee may be exempt from income tax in the host country if certain conditions are met, including that the employee is not a tax resident in the host country.

According to the Double Taxation Treaty (DTT), the employee’s residence status is determined by their personal circumstances and whether the number of days they spend in the host country over a 12-month period (however briefly and for whatever reason) exceeds 183 days.

The UK has DTTs with the vast majority of countries, including all 27 EU member states and the majority of the world’s major economies. In practise, this means that a short stay abroad in many locations will not subject the employee to host country income tax.

Importantly, employees who have already spent time in the host country during the same 12-month period (for example, visiting family) may reach the 183-day threshold sooner than previously thought. Furthermore, the full details of the conditions can vary from DTT to DTT (particularly the period over which the 183-day test must be satisfied), and even if the DTT applies, the employer and/or employee may still have obligations in the host country. (For example, the employer may need to register with local authorities as an employer and/or report on the income that is being paid to the employee.). As a result, it is critical to understand the local situation.

If the employee is subject to tax in the host country but continues to be a UK tax resident, they will be subject to UK income tax on their worldwide income but should be able to claim credit for some or all of the tax they pay in the host country. They will, however, be required to complete the necessary tax declarations, which could be a complicated process.

There are n issues with remote jobs, especially related to taxation, processing time, or risk and fraud. If you are considering being involved in remote jobs, then there are ways to manage these payment issues that can help you sail through your remote employment.

Tax Rebate for Homework Expenses

Employers can currently make a tax-free payment of £6 per week to employees who work from home under a home working arrangement to cover additional household expenses. However, this is usually only available if you are forced to work from home and not doing so voluntarily. During the coronavirus pandemic, Her Majesty’s Revenue Customs (HMRC) relaxed these requirements, allowing employees to work from home under any circumstances.

If the employer does not make these payments, an employee may claim tax relief in the same circumstances as if the employer payment were non-taxable. This is possible through HMRC’s online service. This is achieved by claiming tax relief for additional expenses incurred as a result of working from home on an individual’s self-assessment tax return, online, or over the phone. There are n issues with remote jobs, especially related to taxation, processing time, or risk and fraud.

Provisions for Equipment

Last year, legislation was also introduced that confirmed there is no tax charge on reimbursements to an employee for obtaining home office equipment in order to enable an employee to work from home during the pandemic.

Travel Expenses Reimbursement

The rule for this relief to be available is that any travel from an employee’s home to their ‘permanent workplace is classed as a ‘ordinary commute’. Regular commuting does not qualify for travel expenses.

However, because many employees want to continue working from home, the lines between where an employee’s ‘permanent workplace’ is may become blurred. Because an employee may be able to claim travel expenses for anything other than a ‘ordinary commute’, employers must consider the implications of employees working from home on a more permanent basis. Travel expenses are generally allowable when an employee begins their workday at home and then travels to a meeting.

Remote Working Overseas

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Employees travelling abroad to second homes or long-term vacation rentals and continuing their employment from an overseas country have also increased as a result of the pandemic. There are significant tax implications to consider here, not only for the employer, but also for the employee, depending on the number of days spent outside of the UK. It is recommended that any employee considering working abroad, even for a short time, seek advice both in the UK and in the overseas country. Even if an employee’s duties are ‘linked’ to their UK employment, there may be tax implications in the foreign country.

Conclusion

An employee’s tax position will generally not change if they are working from home and move within the UK, unless they move to or from Scotland. Such a move could have tax implications because the Scottish government has power to set a different rate of income tax from the rest of the UK. If an employee lives in Scotland for a longer period than anywhere else in the UK during a tax year, they will be liable for Scottish Income Tax. However, it is an employee’s responsibility to inform the tax authorities if they move to or from Scotland and their tax code will be adjusted automatically, so the employer does not have to take action in this situation.

When a UK employee works remotely from another country, the situation becomes more complicated. The basic rule is that employers must continue to calculate and deduct income tax from all payments made to UK employees temporarily working abroad under the ‘pay as you earn’ tax system. In addition, such an employee may be subject to income tax in the host country. Allowing an employee to work abroad inadvertently creates a permanent establishment in that country for corporate tax purposes. An employer may also be required to continue deducting social security contributions from employees’ pay, depending on the country in which they work and the length of time they will be working in that country.

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