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Home And Away: Working From Home, Abroad - Tax, Legal Implications

Jack Martin, Matthew Braithwaite and Olivia Ufland, 11 November 2020

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Lockdowns have created a heap of issues for firms and individuals working not just from home, but sometimes from abroad and unable to return to their country of origin for months on end. This raises a range of legal and tax challenges.

A term that everyone is now familiar with (to the point of tedium in many cases, to be honest) is “working from home.” Even before the pandemic hit, there had been a shift towards “telecommuting” and “flexible” office routines, as seen by a rise of new office models that seemed to fit with the “gig economy.” And this has also been very much the case for wealth managers and advisors to private clients with multiple interests and assets in other countries. COVID-19 has accelerated the trend enormously, of course.

Some firms now have to confront how to manage the tax and legal side of all this. There are new risks and obligations to consider, and this is a rapidly evolving space. What approach should individuals and firms take? To grapple with such questions from Wedlake Bell are Jack Martin, private client solicitor, Matthew Braithwaite, private client partner, and Olivia Ufland, trainee solicitor in the employment team. The editors are pleased to share their thoughts, and the usual editorial disclaimers apply. Jump into the debate! Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Since the onset of the COVID-19 pandemic with the majority of the world placed into lockdown in March, working from home has become the new norm for millions of workers. In the UK, as we now enter a second lockdown, it is a realistic possibility that this trend will continue into 2021. In April 2020, statistics released by the UK's Office for National Statistics showed that 49.2 per cent of adults in employment were working from home. Even after the pandemic (whenever this may be), increased levels of homeworking will become a new way of life for a large percentage of workers.  

Some workers have traded the four walls of their modest home office space (or spare room) for more exotic surroundings, by choosing to work in another country, perhaps a second home in France or to visit relatives in Spain, or just because they can. At first blush, there may appear to be no discernible difference between working from home in the UK or from an overseas location. However, there are important legal and tax implications that should not be forgotten by both the worker and their employer. 

Income Tax
A key consideration for both employers and employees is income tax. So long as the time an employee spends outside the UK does not impact tax residency, UK employers should continue to deduct income tax under the PAYE system in accordance with the employee's PAYE code. 

Generally, if an employee is working outside the UK for less than 183 days, this should not affect their tax residency. If the employee is working outside the UK for a longer period (more than 183 days) their tax residency status may be affected. The tax position then becomes more complex and specialist advice would be needed in the relevant jurisdiction where the employee is working.

As a result of working abroad, it may be that the employee is treated as a tax resident in more than one jurisdiction at the same time, potentially requiring the employee to reclaim any double tax levied on their income. Generally, the starting point is that the country where the employee is working (the 'host country') has primary taxing rights over employment income. However, if there is a double tax treaty between the UK and the host country, the employee may be exempt from income tax in the host country if certain conditions are satisfied.

The UK has a DTT with most countries, including all 27 EU countries and most other major world economies. In practice, this means that a short stay abroad in many locations is not going to result in the employee becoming liable for host country income tax. It is, however, important to bear in mind that the specific conditions differ from DTT to DTT and this will have a bearing on the outcome.

Social Security 
An employee's and employer's social security obligations generally arise in the country in which the employee is physically carrying out their duties. There are, however, exceptions to this general rule.

In the European Economic Area ("EEA") and Switzerland, the employer should apply for a certificate from HMRC (called an "A1" document) to allow National Insurance Contributions ("NICs") to continue to be paid in the UK and exempt the employee from local social security liabilities. It is, however, important to note that these rules may change after 31 December 2020 when the Brexit transition period comes to an end. Elsewhere, the position will depend on whether there are reciprocal social security arrangements in place.

If an employee is working in say the US, it should be possible for the employee to remain within the UK social security system (and not pay local social security contributions) for up to five years if they have obtained a valid certificate of coverage. In other countries where no agreement exists, the UK employer must continue to deduct employee UK NICs and pay employer NICs for the first 52 weeks.

Immigration
Employees who request to work remotely from abroad will need to check that they do not require a visa or work permit in order to work in the country in question. Employees who are UK or EEA nationals have the right to live and work in any EEA country, but this will not apply to UK nationals from 31 December 2020 when the transition period comes to an end.
 

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