What does the call for evidence ask?
Key points addressed in the call for evidence include:
- What working across international borders means for tax, social security, tax residence, and permanent establishments;
- How hybrid working affects accommodation, travel, and other expenses (including who meets the relevant costs and whether the permanent workplace tax rules are appropriate); and
- The short-term business visitor rules, overseas work-day relief rules, and the implications for modified PAYE schemes.
The call for evidence poses questions to help the OTS understand hybrid and remote working trends and any issues experienced by employers: comparing the current position to that before to the pandemic, looking at changes due to the pandemic, and considering the position going forward.
What are the key tax issues employers face?
In our experience, providing home working equipment, reimbursing the cost of travel between the home and employer sites, and covering homeworking expenses (or confirming whether employees could claim relief), are amongst the areas that can give rise to tax issues with domestic hybrid and remote working.
Additionally, challenges that employers experience in respect of cross-border arrangements include:
- Determining an individual’s residency position under both UK domestic tax law and any applicable double taxation treaty;
- Confirming whether the business has a payroll reporting and withholding obligation in the country where the employee is carrying out work duties and/or where they are tax resident;
- Managing potential double payroll reporting and tax withholding obligations, including actions they need to take to reduce the cash-flow impact for the individual;
- Managing ‘permanent establishment’ risk and transfer pricing implications; and
- Analysing the social security position taking account of any agreement between the UK and the country concerned.
Employers should therefore review how they approach hybrid and remote working to confirm that they understand the specific tax and social security issues, whether their systems and processes allow them to discharge their payroll reporting and compliance obligations correctly, and that employees are aware of when they might trigger non-UK tax liabilities and be required to file a tax return in another country (or when overseas withholding obligations might arise).
What should employers do now?
This call for evidence is a welcome opportunity for employers to make the OTS aware of specific issues they encounter with hybrid and remote working, with a view to the UK tax and social security rules potentially being simplified.
Employers should consider reviewing their existing hybrid and remote working arrangements to identify any tax and social security issues they might wish to highlight to the OTS.
If there are any points you wish KPMG in the UK to consider including in the submissions we intend to make to the OTS, please speak to the authors below or to your usual KPMG contact.
