Tax
PART TWO
Remote working’s tax impact
So your employer has allowed you to work from home on a virtual basis – great! But what does it mean from a tax perspective? Blick Rothenberg director Robert Salter explains
The key points
UNDERSTAND THE COMPLEXITIES
Even within the UK, there are tax implications to remote working
RESEARCH THE IMPLICATIONS
Working overseas can open taxpayers up to taxation in multiple jurisdictions
BEWARE OF COSTLY MISTAKES
Failure to understand the potential risks can lead to nasty shocks
With Covid-19 having shown that ‘work anywhere’ is a genuine possibility in many roles, many employers have allowed their employees to work on a hybrid or virtual basis – either on a formal, approved basis or through more ad-hoc arrangements, where greater flexibility has been granted to at least some staff.
While the issues that such arrangements can bring for employers has been addressed in a previous Tax Q&A article, employees – and their advisers – also need to be aware of the issues that can arise from such flexible working arrangements.
Surely home working in the UK can’t be too complicated?
Employees working and living in the UK may automatically assume that there are no tax implications for them from flexible/virtual working within a UK context – after all, the UK is ‘one country’ and has common tax rules – correct? Sorry, but that isn’t the case.
Specifically, many people in England (and probably Wales and Northern Ireland too), don’t realise that Scotland has separate income tax rates. Moreover, these Scottish tax rates differ significantly from those in the rest of the UK and can result in people on relatively modest incomes paying much higher taxes in Scotland than in other parts of the UK.
For example, someone on say £50,000 per annum would have the following income tax liabilities depending whether they are resident in Scotland or the rest of the UK:
• Scottish tax liability - £9,034.70 / Net income (exc. NICs) - £40,965.30
• Rest of UK liability - £7,484.20 / Net income (exc. NICs) - £42,515.80
What about travelling to the office?
Employees who are working virtually also need to understand that just because they ‘typically’ work from home in the post-Covid world, this doesn’t mean that any costs they incur in travelling to the office will automatically be ‘qualifying business expenses’.
The reality is that many home workers at the present time are simply working from home through their personal choice – i.e. it is not something which is specifically required or expected from their employer. In this scenario, the costs that the employee incurs in travelling into the office are likely to be regarded as ‘ordinary commuting costs’ and not something which qualifies for any tax relief.
Is there an international angle?
Alternatively, if you have UK-based employees who have moved overseas, you also need to realise that such individuals can have some tax surprises, which can be nasty and costly if they are not prepared.
For example, while the employees may be eligible for ‘digital nomad’ visas, for example, which may allow the employee to work in that jurisdiction, such digital nomads may be:
• Liable to income taxes in that jurisdiction; or
• Liable to social security costs in that jurisdiction.
Moreover, even where the tax rates in the foreign country are relatively favourable, it is still possible for individuals to be shocked from a tax perspective.
For example, the fact that different countries have a different ‘mix’ of income tax and social security contributions compared to the UK can cause problems, where people are commuting to the UK from that overseas jurisdiction (e.g. France). In very simple terms, and just looking at the situation between the UK and France, you have the following tax/social security breakdown in these two jurisdictions:
• The UK has relatively high, income tax rates but (relatively) low NICs for employees (or the self-employed); while
• France has relatively low, income tax rates but much higher employee social charges.
As such, where you have someone who is a cross-border worker between the two countries, but lives, for example, permanently in France and spends at least 25% of their working time in France, you have the following basic position from an income tax social security position:
•They will be liable to (high) French social security contributions on their total salary;
• No NICs should be payable in the UK under the UK / EU Trade & Cooperation Agreement;
• They will typically be taxable in the UK on the 60% of the employment income which relates to UK workdays;
• They will be 100% taxable in France and France will accept a ‘tax credit’ for the income taxes which have been paid in the UK on UK workdays; but
• The French income taxes payable will often be lower than the UK PAYE which has been paid – and the French tax credit will be limited purely to the French income tax payable on the doubly-taxed income; and
• The individuals therefore end up with:
• A high(ish) UK tax charge on their UK workdays;
• A relatively low French income tax charge on the French workdays;
• High French social charges on the total earnings; and
• A cumulative tax/social charge liability which exceeds – potentially quite substantively – what they would have paid by simply working in one jurisdiction.
Summing up
As with anything tax and social security-related, working remotely comes with significant potential risks.
As such, this is really a situation whereby the taxpayer (and their advisers) need to be fully aware of the potential hiccups and problems which can arise and ensure that these factors are considered on a timely basis.
PART TWO