OTS highlights trends and risks of hybrid and overseas working

The Office of Tax Simplification has published a policy paper on Hybrid and Distance Working exploring the tax implications of changing working practices including both hybrid working and overseas working arrangements. It follows a consultation with a number of business and service providers into trends surrounding the change we’ve seen in working practices since the Covid-19 pandemic and sets out what might lie ahead for businesses. We’ll consider that. 

The paper makes clear how a shift towards hybrid working was almost universally reported amongst businesses surveyed for the report. It found that employees have come to expect more flexible working conditions, and so businesses need to be able to offer that flexibility to attract and retain employees. To that end, many large businesses have introduced policies allowing their staff to work for short periods in another country, away from their usual place of work, and that is a trend which the OTS says will continue.

So, let’s get a view on this. Penny Simmons is a tax specialist with clients who either offer that level of flexibility now, or are considering offering it, and earlier she joined me by video link. I asked Penny how much influence the OTS policy paper will have in practice:

Penny Simmons: “Firstly I'd like to say, Joe, that I like the report to have a lot of influence, that would be great, but the reality is, where we are now is, that the report was produced by the OTS, the Office of Tax Simplification, and the OTS is no longer going to be in existence, it's being abolished. It still legally exists at the moment, but it is going to be abolished probably in the next Finance Act. So, the Treasury isn't obliged to follow the recommendations in the report but, not only are they not obliged to follow the recommendations in the report, the OTS won't exist to, if you like, push those recommendations through.”

Joe Glavina: “If the Treasury did take this policy paper onboard, what’s the key takeaway in your view?” 

Penny Simmons: “I think the key takeaway really is that the world of work and hybrid working has shifted and it's been shifting for a while but the shift was accelerated by the pandemic. So, there are various areas where businesses, and individuals alike, need clarity and further guidance on exactly where the law sits and the guidance would really help to simplify the existing law. There are also areas where actually, it's, it's more than just guidance, the Treasury should be looking to simplify the rules so that they work for a world where people are working in a hybrid way, and working from home a lot more, and their place of work isn't just the traditional office and, at the moment, we don't have that simplification, we don't have that set of rules, if you like.”

Joe Glavina: “I know you’re advising clients on these issues on a regular basis. What help are you giving them? What are they asking for?”

Penny Simmons: “So, lots of clients come will approach me from the business angle. So where an individual wants to work abroad for a period of time, and I think, Joe, we’ve talked about this before, but the key issue that comes up from my clients is if this person works abroad for an extended period of time, say for example, a few months, is there a risk that they are going to create a taxable presence in that location for our business? So, if the business doesn't have a taxable presence in that location, is there a risk that that individual is going to create one? That's something that because the law is complicated, it will be dependent on a number of factors looking at precisely what the individual would be doing in that location. That’s not necessarily a quick and easy answer. So those would be the tax considerations. You also have to think about social security contributions and exactly what employment taxes need to be paid and where they need to be paid. So, it can often be quite complicated. So, clients will be asking for advice generally on what are the implications of one of my UK-based employees going to work abroad for a limited period of time with fully with the intention of coming back to the UK, so it's not a permanent move, it’s a temporary move.”

Joe Glavina: “What’s your message to HR around this Penny? Should they be conducting some sort of audit, or review, to identify potential issues?”

Penny Simmons: “There isn't a set audit or review process. Really, it's everything that we've talked about before in relation to other areas of employment tax law. We would strongly encourage that the HR functions within a business and the tax functions within a business, they talk to each other and they communicate a lot and that there are processes in place so where an individual goes to HR, because that's traditionally where they would go to ask - can I go and work abroad for a period of time? - HR doesn't just look at the employment considerations, and that’s exactly the point where they need a process in place so that they contact their internal tax team, or their external tax advisers, to check what are the tax implications going to be both for the individual, from an employment tax perspective, but also for the business, if we allow this person to go and work abroad for a period of time, and it's probably a good idea, because these requests are increasing, and they're certainly a lot more common than they were before the pandemic, that a business has in place a policy and processes for how long they will allow an individual to work abroad and what happens when an individual first makes that request so that there is, if you like, a clear process in place so that businesses can deal with those requests for the individuals themselves, but also to make sure that they safeguard the employment and tax risks for the business.”

The OTS policy paper is called ‘Hybrid and distance working report: exploring the tax implications of changing working practices’. We have put a link to it in the transcript of this programme.

LINKS
- Link to OTS policy paper on hybrid and distance working