The taxation of UK employees working from home or overseas is to face greater scrutiny as the Office of Tax Simplification, an independent adviser to the UK government, launches a consultation into how companies are adapting to the rise in hybrid and remote working.
The number of employees looking to extend holidays and spend time working remotely has jumped in the wake of the pandemic, raising questions for company tax departments, including whether UK employees working abroad become liable to income tax and social security outside the country.
“Very few jurisdictions are aggressively policing this at the moment but, as hybrid working becomes the norm, a crackdown will come over the next few years as these workers will be seen as a lucrative additional source of tax revenue,” said Tim Stovold, head of tax at accounting firm Moore Kingston Smith.
The OTS review, which will be published next spring, will examine the tax and social security implications for companies and employees of working across borders, as well as homeworking in the UK. It will also assess the role of “digital nomad” visas now offered to attract mobile workers in more than 40 jurisdictions.
Chris Sanger, head of tax policy at auditor EY, said there was demand from employees for flexible working options which enabled them to work from abroad and that companies were recognising this is an “attractive bonus” if it could be managed appropriately.
He urged the government to make its tax rules clear for those looking to come to the UK to work for a brief period of time so they can plan accordingly and be certain they will not have tax concerns when they return home.
“We are seeing a new environment being applied to old rules,” Sanger explained.
Robert Salter, a tax service director at accountancy firm Blick Rothenberg, said the UK exchequer typically “loses out” because more UK employees preferred to work overseas and pay tax in other jurisdictions than the other way around.
“Lots of people in the UK have holiday houses abroad, and London in particular is very multicultural, with people with overseas links often wanting to keep their London salary but spend more time in their country of origin,” he said.
As part of its call for evidence, the OTS wants to understand how widespread remote and overseas working is among UK employees. Data from the Office for National Statistics in May showed that 38 per cent of those earning more than £40,000 were “hybrid workers” and had worked away from the office at some point over the seven days to May 8.
Philip Swinburn, employment tax specialist at law firm Macfarlanes, said he was seeing companies take a range of approaches to remote and hybrid working as they tried to manage the balance between being flexible and managing tax risk.
Airbnb, for example, has a “live and work anywhere” policy, whereas some companies require staff to request permission before they can work outside the UK.
“This is often driven not just by tax risk but by other factors such as regulatory restrictions, or the ‘norms’ in certain industries,” Swinburn said.
