Employing someone abroad: what UK employers need to know

By Pankaj Rajani, Partner & Co-Founder

With the rise of remote work, hiring talented professionals from around the globe is becoming increasingly common.

However, if you’re a UK employer considering this option, there are several important factors to consider to ensure compliance with both UK and foreign regulations.

While it might seem straightforward to have an employee work remotely from another country, I’ve seen numerous instances where businesses haven’t considered the tax, social security, and legal implications that need careful attention first.

Income Tax implications

When an employee works abroad, the country they are in may have the right to tax their income, subject to any double taxation agreements (DTAs) in place.

These agreements aim to prevent the same income from being taxed in both countries.

DTAs can protect your employee from being taxed twice on the same income.

Typically, if they spend less than 183 days in the foreign country, work for a UK-based employer, and their remuneration is not borne by a permanent establishment in the foreign country, they will generally only be taxed in the UK.

Having said that, HM Revenue & Customs (HMRC) will scrutinise how your payroll is managed if you employ someone based overseas.

So, it’s essential to ensure that you’re correctly handling your payroll to avoid any potential issues.

Tax residency rules also differ from one country to another, so you’ll also need to understand the specific regulations that apply to your employee’s situation.

Key factors to consider include:

  • Tax residence acquisition: Your employee may become a tax resident of the country they are working in, depending on how much time they spend there.
  • UK tax residence rules: Determine if your employee will maintain UK tax residency.
  • Dual residency and treaties: If your employee is considered a resident in both countries, the double taxation treaty between those countries will determine their tax liabilities.

As we mentioned, your employee’s risk of becoming a tax resident in another country increases if they spend more than 183 days there within a tax year.

However, even shorter periods can trigger tax residency depending on the specific country’s rules so you should always discuss the issue with a qualified international tax adviser.

Social security obligations

Social security contributions, known as National Insurance in the UK, are separate from Income Tax.

Your employee might still need to pay social security contributions in the country they are working from, even if they are not taxed there.

As an employer, you may also have social security liabilities in the countries where your employees are based.

It’s important to conduct detailed research and seek professional advice to navigate these obligations.

Bilateral or multilateral agreements, such as those between EEA countries and Switzerland, can help protect against dual social security contributions but an A1 certificate may be necessary to ensure compliance.

Before sending someone to work overseas, or employing a non-resident to work for your business, we highly recommend you speak to a trained, experienced and qualified tax adviser.

We can conduct the thorough research required and give you professional advice tailored to your specific circumstances which will help you maintain compliance and financial wellbeing.

We are here to help you navigate the complexities of employing overseas workers, so please get in touch.

Posted in blog, Business, Business Advice, Employment, Employment Law, Income Tax, International.