Reading Time | 2 mins

Working from Home – Tax consequences of your employees working in other countries

Share this article

Covid 19 has led to a major change in how many employers operate with regards to where their staff work. For some of us, this means working from our living room or home office. However, for some, this means a total shift in their way of life by moving abroad to sunnier places.

It is also possible that a business may determine that certain jobs do not have to be done by someone present in the UK, allowing them to access talent across the globe.

If you already have employees living or working abroad or are considering this option, you should be aware that there are a few tax-related things you’ll need to consider;

  • Overseas Payroll implications
  • UK Payroll and potential support required with UK tax returns for the individual
  • Permanent Establishment (PE) Risk
  • National Insurance in the other country
  • Employment law in the other jurisdiction

This is a complex area with many things to consider and can be costly if you get it wrong. It can often lead to employees being taxed in more than one country on the same income, so you should seek specialist advice to limit PAYE exposure.

The individual and employer could also be required to pay social security contributions (aka national insurance) in that other country. The basic premise is that you pay where you work, with the employer contributions following those of the employee. There are some exceptions to this rule which should be noted and considered.

Often, the UK employer would need to set up payroll in the other country and may be required to withhold a PAYE equivalent. It is worth noting that certain EU countries have much larger employer rates than the UK, and there is no dispensation against these rates as a UK employer.

The employer would also have to ensure that the UK employment contract is not contravening the local employment law for areas such as; minimum wage or working hours, so you should seek local legal advice.

Depending on the employee’s role and responsibility, it could also open the UK company up to the equivalent of corporation tax in the country in which the individual is working.

Finally, it can also mean that the employee in question must file a UK tax return setting out their tax residence position and UK workdays to establish the correct tax position. The UK tax residence rules are complex, and if tax resident in both countries, the interaction of the double tax treaty needs to be considered.

Getting this wrong can be costly for the employer and employee in terms of tax paid but also interest and potential penalties for late tax or filing of returns. If you require advice in this area, we are here to help. Our specialist team in the UK can liaise with other members firms within the Kreston International Network to provide you with advice in both countries to ensure both employee and employer are compliant.

Please do get in touch if you have any questions or would like advice in this area.