With the rise of remote working, hiring talented professionals from across the globe is becoming increasingly popular.
However, for UK employers considering this option, there are several crucial factors to keep in mind to ensure compliance with both UK and foreign regulations.
While it may seem straightforward to have an employee work remotely from another country, I have witnessed many instances where businesses have overlooked key tax, social security, and legal considerations. These issues require careful attention.
Income Tax implications
When an employee works abroad, the country they reside in may have the right to tax their income, depending on the existence of any double taxation agreements (DTAs).
These agreements are designed to prevent the same income from being taxed in both the UK and the host country, thereby protecting employees from double taxation.
Generally, if your employee spends fewer than 183 days in the foreign country, works for a UK-based employer, and their remuneration is not borne by a permanent establishment in the foreign country, they will primarily be taxed in the UK.
However, HM Revenue & Customs (HMRC) will closely scrutinise how you manage your payroll when employing individuals abroad, making it essential to handle payroll matters correctly to avoid complications.
Tax residency rules vary significantly from one country to another, and it’s essential to understand the specific regulations that apply to your employees.
Key considerations include:
- Tax residency status: Your employee may become a tax resident in the country they work in, based on the duration of their stay.
- UK tax residency: Determine whether your employee will retain their UK tax residency status.
- Dual residency and treaties: If your employee is considered a resident in both countries, the DTA between those countries will determine their tax liabilities.
The risk of becoming a tax resident in another country increases if your employee spends more than 183 days there within a tax year.
However, shorter stays may also trigger tax residency under certain jurisdictions, so it is always advisable to consult an international tax adviser.
Social security obligations
Social security contributions, or National Insurance in the UK, are distinct from Income Tax.
Employees working abroad may still need to contribute to social security in the host country, even if they are not taxed there.
Likewise, as an employer, you may have social security liabilities in the countries where your employees are based.
To navigate these obligations, it is vital to conduct thorough research and seek professional advice.
Bilateral or multilateral agreements, such as those between European Economic Area (EEA) countries and Switzerland, may offer protection from dual social security contributions. An A1 certificate may also be required to ensure compliance.
Before sending employees abroad or hiring non-residents, we strongly recommend consulting with a qualified tax adviser.