Do you have people flexible working overseas? Here are the tax implications for your business

First published on 17 July 2023 by Alastair
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It’s increasingly common for firms to have staff located across the globe, especially in areas such as IT.  Covid obviously accelerated this trend and in the last year more than half of UK companies have increased their number of international hires.  But now a report by consultancy RSM has raised concerns that a substantial number of businesses with staff working overseas are unaware of the potential tax risks. 

Most countries, including the UK, have strict restrictions on the length of time non-nationals can live and work there.  The RSM report notes that nearly a third of employees of firms offering hybrid working have set restrictions on the length of time their employees can work abroad.  This suggests these firms know the tax risks associated with overseas working, but it also implies that some two-thirds of businesses probably have no restrictions in place and therefore are less aware of the tax implications.

Businesses need to balance their commercial needs and objectives with the tax risks of employees working overseas or in their home country, but it's likely that some, possibly many, cross-border workers do not understand what they’re signing up for, with many potentially entering a ‘tax minefield.’  

Internationally mobile employees could suffer from deductions for tax in each country and consequently be left with considerably reduced take-home pay. Alternatively, an overseas individual who is seconded to the UK for a short period may suffer PAYE in real time on their UK earnings and be asked to complete a self-assessment tax return - only then to discover that because of personal allowances no UK tax was due after all, and they then receive a refund after the tax year ends.

For the companies concerned, the risks associated with permanent establishment rules for non-resident companies are widespread. These organisations should seriously consider if their employees working from a home office in another country might be creating a taxable presence, meaning that they could be subject to hefty corporation tax bills when they source workers overseas. Joanne Webber, global employer services partner at RSM UK, said, “There will be different tax rules depending on the country an individual chooses to work from, so employers venturing into ‘work for anywhere’ arrangements need to set parameters for staff and have a clear company policy in place, so everyone understands the risks.”

UK companies with employees working outside the UK need to consider the local rules, treaties and local tax authority approach in each.  These often differ from country to country.  Under UK law, permanent establishment means that profits can be potentially taxable in two countries, and often consideration must be given to whether there is a double tax treaty (DTT). The UK has more than 130 DTTs with countries across the globe, with each containing differing tax treatments and rules.  According to RSM, local advice should always be sought on the global tax risks associated with overseas working.

All this means a lot of administration is required on the part of the employer, including: monitoring employee movements; record-keeping; payroll processing and real time information reporting – all of which create considerable financial inconvenience for everyone (especially the employees!) concerned.

As always, if you are unsure of whether this applies to your firm, please don’t hesitate to get in touch with us for advice.

Christopher Leslie, M&S Accountancy and Taxation Ltd

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