In the “new normal”, many UK companies have being dealing with requests from employees to work abroad, in some cases because people have been stranded abroad due to Covid-related reasons; in other cases because employees have wanted to work abroad as this has suited their personal or family circumstances.
Having employees working abroad raises a number of issues for UK employers – most importantly in relation to tax and immigration. In this article, we take a look at some of these issues and some practical considerations for employers in terms of reviewing the arrangements now that the pandemic is hopefully starting to ease.
In most cases UK employers will have continued to deduct income tax and employee National Insurance Contributions (NICs), and pay employer NICs, notwithstanding that the employee has been temporarily working abroad. That is the correct approach assuming the employee has remained tax resident in the UK. If they have been working abroad for an extended period, they may have ceased to be UK tax resident (as a general rule, an individual will no longer automatically be UK tax resident if they spend fewer than 183 days in the UK in the tax year).
Employees working overseas can become liable for income tax in the country where they are working, depending on the rules of that country and any Double Tax Treaty between the UK and that country. The employer and the employee can also become liable to pay social security contributions in that country (again, depending on the local rules and any agreements in place between the UK and that country). It is therefore very important for UK employers to fully understand the local (as well as the UK) tax position.
The OECD has issued guidance recommending that where people are stranded abroad due to Covid-19, that should be disregarded when determining their residence for tax purposes and they should continue to pay tax in their place of usual tax residence as normal. So if an employee is stranded abroad and they were UK tax resident before that, and will only temporarily lose their UK tax residency, the OECD guidance recommends that this is disregarded by the countries involved.
However, it is up to the individual countries to implement this guidance. Whilst the UK has taken this advice on board, and HMRC will not seek to tax people who intended to leave the UK but could not due to Covid, the tax authorities in other jurisdictions may take a different stance. Also, the OECD guidance is only relevant where the employee is stranded abroad due to Covid-related reasons – not where they have chosen to work abroad for personal or family reasons (in which case, there is no reason why the normal rules should not apply).
The rules around the payment of NICs are complicated. In summary, an employee still employed and paid by a UK employer can pay UK NICs for up to 24 months following departure to a role in the EEA. For roles in other countries the employee usually pays UK NICs for up to 12 months following departure. Aside from this the UK has an agreement with a number of countries to avoid double deduction of social security taxes. Otherwise generally when employees work overseas they become liable to overseas social security taxes.
Post-Brexit matters may be more complicated (as far as EU countries are concerned) in that previously there was at least an informal (and in some cases reciprocal and formal) rule that if tax was being deducted and social security contributions were being paid in one member state then another member state would not concern themselves with the tax on the income. Post-Brexit the EU 27 may well take the view that whether or not the employee or employer is paying tax in the UK is of no concern to them and they may want to have tax deducted on payments made in respect of periods when the individual is based in the member state. However in these circumstances the member states concerned will have to take account of the Double Tax Treaty between the UK and each state. Tax can only be deducted in accordance with those treaties.
There can also be another potential tax risk for UK employers of inadvertently creating a “permanent establishment” in another country, meaning that they can become liable for corporation tax in that jurisdiction. This can happen for example if the employee working abroad frequently negotiates and executes contracts on behalf of the employer in that jurisdiction.
If an employee works for a short period in another country whilst stranded there for Covid-related reasons, practically this may never come onto the radar of the immigration authorities in that country but this could have knock on effects for employees on a UK visa.
In addition, there are added layers of complexity in terms of any sponsored workers who may be stranded overseas and working overseas for an extended period of time. The Home Office has put in place a number of Covid related concessions to deal with this, but the concessions are subject to change. It will be important for these workers to retain evidence that they have not been able to return to the UK, perhaps due to cancelled flights or information from the FCO that travel is not advisable.
What about the situation where an employer has permitted an employee to work abroad for a longer period for the employee’s own personal or family reasons? Take, for example, an Italian national who has been permitted to work for an extended period in Italy. It may be that no issues arise from an Italian immigration perspective (given that the employee is an Italian national). However, could the arrangement cause problems for the employee post-Brexit from a UK immigration perspective with regards to their return to the UK? This will depend on the individual’s particular circumstances.
In the case of a British national who has been permitted by their employer to work temporarily in Italy or another EU member state, there could be post-Brexit considerations in respect of their status overseas.
From a right to work perspective, UK employers should primarily be concerned that the employee has the correct immigration status in the UK, assuming the UK remains the employee’s contractual place of work. However, for staff who are permitted to work overseas on a temporary basis it would be prudent for UK employers to be satisfied that the employee is entitled to work in the other country and does not require any special permissions to do so, such as a work visa.
It is important for UK employers to be clear on local immigration laws as employees working abroad in breach of these laws can have serious ramifications for employees as well as legal and reputational consequences for the employer.
In additional to the tax and immigration issues, UK employers also need to be aware that employees working abroad can start to benefit from mandatory employment protections in the country where they are working (for example in relation to paid leave and rights on termination). What protections (if any) apply will differ from country to country, but it may be that the protections are more generous than equivalent protections in the UK.
The longer the employee spends overseas, the greater the risks may be of them asserting some mandatory employment right under the law of the other jurisdiction.
It is also worth bearing in mind that there may be different or additional local health and safety obligations that a UK employer needs to comply with.
UK data protection law restricts the transfer of personal data to countries outside the UK and EU, unless there are appropriate safeguards in place to protect the data, or the transfer is to a jurisdiction with similar data protection laws. Remote access from a different country is generally considered to be a transfer of data. However, the ICO (the UK’s data regulator) has indicated that it does not consider transfers of data to an employee in a different country to be restricted (it may take a different view with regards to self-employed contractors).
UK employers still need to make sure that employees working abroad comply with internal data policies and procedures, particularly as the employer may have less control over the employee’s activities if they are in a different country. Employers will also need to be aware of the local data protection laws to ensure that employees processing personal data abroad are not in breach of local laws.
As the pandemic now hopefully starts to ease, UK employers who have permitted employees to work abroad should take the opportunity to review the arrangements as soon as possible (as the longer the arrangements are allowed to go on, the greater the potential risks for employers).
Employers would be wise to either set a timetable for employees to return to the UK (which complies with UK travel restrictions on quarantines and “red list” countries, and recognises that some staff will not presently be permitted by the country they are in to return to the UK) or formalise the employee’s status both for immigration and tax purposes whilst they are abroad.
Where employers are willing to consider agreeing longer term arrangements, there are a number of practical considerations to bear in mind:
First of all, it is crucial to understand the tax and immigration position – and many employers will not be willing to agree longer term arrangements taking into account these risks (if the request is made simply because it suits the employee’s personal or family circumstances). If tax is the key risk, employers may only be willing to consider longer term arrangements if the employee is willing to provide indemnities in respect of any unexpected tax liabilities for the employer. Employers also need to be mindful of the potential employment law risks in the other jurisdiction;
If agreeing longer term arrangements, employers should ensure that the scope and details of the arrangements are clearly set out in writing, in particular the length of the period the employee will be allowed to continue to work abroad (assuming it is not a permanent arrangement). Employers will also need to make any necessary amendments to the employee’s contract of employment to reflect the arrangements agreed;
Employers should also consider whether they have adequate insurance in place to cover the employee continuing to work abroad. In certain cases, it may be appropriate to require employees to take out insurance of their own if agreeing for them to continue working from a different country;
Employers may wish to consider developing a short policy for dealing with requests to work (or continue to work) from abroad. This might cover, for example, the process for making requests, how the employer will go about making decisions, and any general restrictions (for example, employees may only be permitted to work from abroad for a certain maximum period, or there may be certain roles that cannot be performed from abroad). Employers may choose to set this out as a separate policy, or deal with it under an existing policy, for example a working from home policy;
Employers should also ensure that existing policies, such as health and safety and data protection policies, adequately cover employees working from abroad. Employers should also review their expenses policies and consider, for example, whether they will cover any additional costs associated with an employee continuing to work from a different country or expect these costs to be met by the employee (for example, travel costs if the employee is required to return to the UK for work for any reason);
Employers should bear in mind that the Home Office Covid related concessions are constantly changing, so it is important to consider the latest guidance. It is recommended to keep screenshots of any concessions that are being relied upon. Remember that these concessions may be limited in scope to those who really cannot travel and not to those who could return but have chosen not to (as was the case during the summer months when lockdowns were lifted and most staff could have returned to the UK).
If you require advice on any specific issues relating to employees working abroad, please contact Damian Ward. We have a team of expert advisors who can assist across these various areas. We also benefit from a network of associated offices across Europe from whom we can take local advice as necessary.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of February 24, 2021.