It is becoming increasingly common, especially amongst online businesses, for the workforce to be spread globally and for employees to work from home. Employers need to be aware of their responsibilities both in the UK and the country where the employee is based. Questions to be asked include:
  • Who within the organisation will ensure all compliance obligations will be fulfilled?
  • What are the employer’s obligations in the country where the employee is located?
  • What actions is the employee expected to undertake?
Consideration needs to be given as to which country holds the primary taxing rights on the employee’s remuneration. Typically double taxation treaties award the right to tax to the country where the employee is based where the following is present:
  • The employee is present in that state for a period or periods exceeding in the aggregate 183 days in any 12 month period beginning or ending in the fiscal year concerned;
  • The remuneration is paid by, or on behalf of, an employer which is not a resident of that state; and
  • The remuneration is not borne by a permanent establishment which the employer has in that state.

If the employer does not have a permanent establishment in the host country the position in most EU countries is that the employee will be responsible for registering to file a tax return in the host country and for paying income tax due on their remuneration. In some other countries, the employer is required to operate payroll and deduct taxes from day one.

In terms of social security, the basic rule is that contributions are due where the employee works. There are however certain “easements” where the employee is working in the EU or a European Economic Area (“EAA”) country or in a reciprocal agreement country (eg Barbados, Canada, Isle of Man, Japan, New Zealand, USA to name a few).

The UK-EU Trade and Co-operation Agreement largely replicated the pre-Brexit regulations. Employees are only liable to social security contributions in one country, generally where they carry out their work.

It is possible to maintain payment of UK National Insurance when an employee is sent to work in the EU temporarily and for a period not exceeding 24 months. This is known as an A1 certificate.

Where there is a liability to pay social security contributions in an EU country, in most circumstances, there will be a need for the employer to register with the social security authorities and to operate payroll in order to pay those contributions. This is of course an additional cost, even more so in some countries where employer contributions are higher (eg. Italy 30%, Germany 19.98%, Spain 29.9%).

Similar considerations apply where there are social security reciprocal arrangements, with varying arrangements for UK employees to maintain UK contributions when posted abroad temporarily.

Another area of concern arises where senior employees are located abroad and whether a permanent establishment of the UK business could be created in the other country. Even if the employee works from home that could lead to the existence of a permanent establishment which is significant in terms of the taxation of the country’s profits, which could be partly taxable in the other country.

In addition to income tax and social security issues other considerations include:

■ What changes are required to employment contracts?
■ Does the employee have the right to work in the host country?
■ What duty of care arrangements are in place for the employee’s health and safety in the workplace
■ Where UK employees work outside the UK for prolonged periods could they acquire employment rights in the host country?
■ What type of data security arrangements do employers need for employees working outside of the UK?
Advice is required not just in the UK but in the host country to help minimise any potential mis-declaration of income tax and social security contributions.