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Out-Law News 3 min. read

Experts welcome OTS review of remote worker UK tax status

A review launched by the Office of Tax Simplification (OTS) into the taxation of UK employees working from home or overseas will help end “significant challenges” faced by employers since the start of the Covid-19 pandemic, according to one legal expert.

Penny Simmons of Pinsent Masons said: “In recent years, there have been radical changes to peoples’ working patterns with an increasing occurrence of hybrid and remote working and UK based individuals looking to work remotely from an overseas location for a short period”. She said the changes had been accelerated by the Covid-19 pandemic and that the UK’s tax system has not been updated to reflect modern working practices.

Commencing its review, the OTS, an independent advisory body to the UK government, said it was “keen to engage” with employees and self-employed individuals who engage in hybrid working, spending at least some of their contracted hours in their employer's workspace. It also wants to hear from home workers who are not required to work from an employer’s workspace, or who work for a company that does not have one.

The review will examine the tax and social security status of employees working abroad and from home in the UK, and the implications for their employers. In particular, the OTS said it would clarify whether UK employees working from other countries are liable to pay income tax and social security on their salaries there. It added that it also wanted to examine how accommodation, travel, and other expenses work in a hybrid world, and the treatment of pension contributions and share schemes.

Simmons Penny

Penny Simmons

Legal Director

The risk of creating a taxable presence [in another jurisdiction] is increased if the employee [based there] is involved in managerial decision-making

The review, set to be published in spring next year, will also analyse corporate tax issues that could arise for businesses with employees working overseas, as well as the impact of the new ‘digital nomad’ visas now offered by more than 40 overseas territories and countries – designed to attract mobile workers by offering many of them a tax-free stay.

Simmons said: “Although HMRC published preliminary guidance at the start of Covid-19, this focused on individuals who were essentially stranded abroad and unable to return – no updated guidance has been issued since travel restrictions were relaxed. This has created significant challenges for employing business when responding to hybrid working requests from employees looking to work remotely abroad.”

“One particular risk area for corporate tax concerns whether a UK employee working overseas in a location where their employer doesn’t have a fixed place of business can actually create a tax presence for the business in that location. If the business acquires a taxable presence, they may become liable to corporation tax in that overseas location. The risk of creating a taxable presence is increased if the employee is involved in managerial decision-making,” said Simmons.

Stephen Rebecca

Rebecca Stephen

Legal Director

Remote working from an overseas location … can mean individuals obtain statutory employment rights under local law in the country in which they are based

“This has become a huge area of concern for businesses when dealing with remote working requests from employees, particularly where the employees are senior and able to make decisions that may bind the business and has led many businesses to impose blanket bans on requests to work remotely abroad or has led to onerous restrictions when permitting requests, such as limiting remote working abroad to only a few days,” said Simmons.

She added: “The OTS review is, therefore, welcome. But given that its findings are not expected until spring 2023, and ministers are not even obliged to implement any recommendations, businesses may still have a long time to wait before they are given any certainty on this issue. In the meantime, employers should take a risk-based approach when dealing with remote working requests to ensure that they don’t fall foul of UK tax rules accidentally.”

Rebecca Stephen of Pinsent Masons said employers also need to be mindful of the employment legal issues that can arise from remote working from an overseas location. She said: “such arrangements, for example, can mean individuals obtain statutory employment rights under local law in the country in which they are based. There are also other potential issues, such as compliance with local data protection laws and health and safety regulations.”

She added: “Such arrangements can also affect pension and insurance benefits depending on the scheme rules. Given the myriad of issues, this is another reason why employers should consider these arrangements carefully in advance and is likely why many employers take the approach of agreeing to such requests in exceptional circumstances only.”

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