The Office of Tax Simplification (OTS) has published a scoping document examining the emerging trends and tax implications of hybrid and distance working. It includes employees working overseas for employers based in the UK, and conversely those doing work in the UK for overseas employers.
The review will focus on income tax, NICs and corporation tax and will consider evidence of, and research into, how the trends in working practices are likely to develop over time. It will consider the challenges to employer and employee compliance; the impact of cross-border arrangements; and the tax consequences of remote working arrangements on share schemes and pension contributions.
So, let’s consider the implications of this review. Chris Thomas is a tax specialist and he joined me by phone to discuss it. I started by asking Chris if the review is unexpected:
Chris Thomas: “I think in some ways, it isn't, no, because it reflects trends that I think we all know have been happening since the pandemic and there has been a lot more, shall we say, flexibility in terms of the way that individuals are working, and a lot more remote working, and that isn't just remote working within the UK, in many cases, it's involving people working overseas in a way that is, perhaps, different from the way traditionally it would have been where you had a kind of a planned assignment, or secondment, for a particular period of time whereas it now sems a lot more ad hoc, it's a lot more employee-driven in many cases and it's something that a lot of employers are having to accommodate. We have seen that give rise to a lot of quite tricky tax issues which a lot of clients have been struggling with a bit in terms of making sure that they're on top of what the implications are of people who are wanting to work overseas, making sure they set a framework and a policy for that to manage what the risks might be in terms of how long they can go for, where they can go, etcetera. So I think what the Office of Tax Simplification have done is they've recognised that there has been this shift and they're starting to think about what might the implications of that be for the tax system. For those who are not familiar, the role of the OTS is really to take a broader view and look at whether the tax system needs amending or updating to reflect changes in the way that business is operating and the implication here is that they've obviously noticed this change is happening and they are starting to think about whether the current tax system - which probably wasn't really set up with this in mind - does it need amending a bit? So, for example to reflect the fact that you've got a lot more people working cross border, they're working in a much more ad hoc way, they might be working remotely all of the time, and the implication, although they don't expressly say it, is that the current system is very much based on people physically being in a particular place and that's what determines where taxes and national insurance is paid. There’s an interesting sub-strand here as to whether that might change, although they haven't said so, and I think it would be a really big change if it did, and there's no suggestion it's actually going to, but I think it's definitely one to watch this space because there are obviously quite a lot of challenges that employers are wrestling with already and I think it is possibly on horizon that there may be changes here to the way that the system works.”
Joe Glavina: “What’s the advice to HR professionals listening to this, Chris. Any steps to take to get ready for any potential changes which might come in?”
Chris Thomas: “I think at this stage I wouldn't worry too much about what future changes may or may not arise as a result of this Office for Tax Simplification consultation. I think what I would say is let's focus on the regime as it currently is, and make sure that the risks that are arising from people working overseas are being properly understood and managed because, from our experience, that can be quite challenging and doesn't always happen. So, if you haven't already got a policy that addresses when people can and can't work overseas, and the parameters around that, which takes into account what the tax risks are likely to be, whether that be income tax, whether it'd be possible permanent establishment risk being created in another country, then you probably need to do that and, even if do, there's still a challenge of making sure that when somebody actually does request to go and work overseas that an individual assessment is made because if it's going beyond two or three weeks here and there, because a policy can't be completely all-encompassing because the situation does vary country to country, so really, if someone's going to be working overseas for more than quite a short period you do really need to be getting some advice on an individual basis.”
The OTS policy paper on this – the review of hybrid and distance working scoping document – is currently available from the government’s website. We have put a link to that in the transcript of this programme.