Since the start of the pandemic, the pivot to “hybrid” working has been widely viewed as a positive change within the workforce. By either choice or necessity, workers across the globe have embraced remote-working as part of their “new normal” – with many citing an increase in productivity in turn.

With many now working from home, working abroad or even registering their home address as one of their company’s permanent establishments, there are a number of tax considerations raised within this moving climate. Please find below some FAQ’s about the tax implications of remote working – outlining the potential benefits and pitfalls for both employers and employees to consider.

If you are an employee of a company in the UK but working from home/remotely in the UK are there any tax consequences you should be aware of (as opposed to working in the office)?

You may be able to claim tax relief for additional household costs if you have to work at home on a regular basis, either for all or part of the week. The tax relief can be claimed on £6 a week, for which you won’t have to provide any evidence. Alternatively, a taxpayer may be able to claim the exact amount of extra costs, however, for that the taxpayer will need to keep the evidence such as receipts/bills etc. More information can be found here https://www.gov.uk/tax-relief-for-employees/working-at-home.

What should you do about them – how can you maximise tax efficiency?

In order to maximise tax efficiency, it would be advisable to claim the actual cost rather than £6 a week. If the taxpayer wishes to claim the actual expenses, they should keep all of the receipts/bills etc. in case of HMRC enquiry into the expenses claimed.

Use of Assets:

– Where an employer lends an asset to one of their employees and the asset is used for private purposes and not solely for business use, a taxable benefit will arise. The benefit will need to be recorded via a form P11D and will be subject to tax and Class 1A National Insurance.

– The taxable value of the benefit can be reduced where the asset is used for business purposes, or the employee makes a contribution for their private usage of the asset. This is also known as “making good” the chargeable benefit. The latest date for making good for all non-payrolled taxable benefits is 6 July following the end of the tax year in which the benefit is provided (i.e. 6 July 2022 for 2021/22 benefits).

If you are an employee of a company in the UK but working remotely abroad what are the tax consequences you should be aware of?

Sending employees to work overseas could mean that employees end up taking home less pay than they would have if they had continued working in the UK on the same salary as a result of the different tax and social security obligations in the alternate country. Where there is a dual payroll obligation, employees are in danger of being taxed on the same income twice. There are different ways for an employer to bear the foreign tax and national insurance burdens in order to minimise the impact on the employees’ net salaries so that take-home is either unaffected or minimal. These may be:

– Tax equalisation: the employer covers all the UK and foreign tax and national insurance, and the employee pays the tax they would have been liable to if they stayed in the UK.

–  Tax protection: the employee pays all UK and foreign tax but where their costs exceed an agreed limit, the employer covers the difference. With this option, the employee would only be liable for what they would have paid if they stayed in the UK.

– Providing a beneficial loan: the employer provides the employee with a beneficial loan to cover the cash flow disadvantage suffered as a result of paying tax in two countries. The loan would have to be repaid after the employee’s claim for foreign tax credit. If the loan is over £10,000 in any given point of the tax year, this will create a benefit in kind for the employee where the tax and national insurance contributions would have to be paid.

The tax cost to the employee will be the same for the first two options. However, it would be significantly higher for the employer. In the third scenario, the employee would have to bear the additional tax. Therefore, prior to going abroad for work duties, it is worth considering the overall cost of the assignment to both the employee and the employer.

Permanent Establishment Considerations:

– A permanent establishment generally means a fixed place of business through which the business of an enterprise is wholly or partly carried on from. This can include a place of management, a branch or an office (including potentially an office in an employee’s home).

– Where a permanent establishment exists, the employer would then have reporting requirements (relating to their business profits) in the other country. Any profits attributable to the permanent establishment would be liable to tax in the other country.

– It is possible for an employee to create permanent establishment issues for a UK employer simply from working there if they hold out their office as a place of work to clients, they use a home office for six months or more and/or they have the right (and this is habitually exercised) to negotiate and conclude contracts.

– The definition of a permanent establishment can vary between countries so needs to be considered on a case by case basis. More information on employees working abroad can be found here https://www.gov.uk/guidance/paying-employees-working-abroad.

Are there any other things you need to do?

Visas:

– Speaking about the UK, a visa may be needed to visit, study or work. The following link will help to establish whether the visa will be required or not https://www.gov.uk/check-uk-visa.

Health Insurance:

– If you’re visiting England for less than 6 months, you should ensure you’re covered for healthcare through personal medical insurance during your visit, even if you’re a former UK resident. If you’re not ordinarily resident in the UK and you need to pay for NHS hospital treatment, you’ll be charged at 150% of the national NHS rate. More information can be found here https://www.nhs.uk/nhs-services/visiting-or-moving-to-england/how-to-access-nhs-services-in-england-if-you-are-visiting-from-abroad/.

National Insurance:

– It is worth mentioning that an individual would need to apply for a National Insurance number in the UK, if they are planning to work, claim benefits, apply for a student loan and/or pay Class 3 voluntary National Insurance contributions. More information can be found here https://www.gov.uk/national-insurance.

The costs of visa and health insurance applications depend on each country and the circumstances of the individual. The national insurance number applications are free of charge. Wilton can provide assistance for those applications at a fee.