Remote and overseas work has become more common across many sectors. We often receive enquiries from UK employers interested in leveraging the expertise of talented professionals overseas.
However, this raises important questions about your obligations as an employer. If you are considering hiring an overseas worker, several potential consequences for both you and your employee must be considered in the short, medium, and long term.
Why working overseas isn’t simple
While it might seem that an employee only needs an internet connection to work from anywhere, the reality is more complex.
Hiring someone to work overseas for your UK company can trigger various tax, social security, and legal consequences that need careful consideration.
Income Tax
If an employee physically carries out their work duties overseas, the country they are in will likely seek to tax the income they receive for those duties, subject to double taxation agreements.
Similarly, HM Revenue & Customs (HMRC) may have questions about your payroll and how it is managed and taxed if someone you employ is based in another country.
Tax residency
The rules vary from one jurisdiction to another, but it is common for a person working in a different country to be subject to tax on the income earned in the UK, unless they spend time in various countries or have a substantial secondment to one country or another.
Tax residency rules are extremely complex, and what tax your employee may have to pay and where can vary based on several conditions. To determine their tax situation, consider:
- Whether they will acquire tax residence in another country.
- Whether they will break UK tax residence rules if they spend time here.
- If they are resident in both countries, whether they are a treaty resident.
An employee’s risk of becoming a tax resident in another country increases significantly if they spend more than six months (183 days) there. However, even shorter stays can trigger tax residency under certain conditions.
Double tax agreements
These agreements can protect employees from being taxed in both the UK and the country where they reside.
Typically, if they spend less than 183 days in the other country, work for a UK-resident employer, and their remuneration is not borne by a permanent establishment in the other country, they would generally only be taxed in the UK.
Social security
Social security (known in the UK as National Insurance) obligations are separate from income tax and need to be considered independently. Even if your employee is not taxed overseas, they may still be liable to pay social security contributions there.
As an employer, you may also have social security liabilities in all the countries where your employee is based.
Therefore, it is important to conduct detailed research and seek professional advice if you intend to hire a person working overseas and continue to run their salary through your payroll.
Bilateral or multilateral agreements (like those between EEA countries and Switzerland) can protect you and your employee from dual social security contributions. Similarly, an A1 certificate may be necessary to protect you and your employee from social security obligations in other countries.
Other consequences
Working overseas can have various implications for a UK employer, including:
- Payroll withholding: Employers may need to comply with local payroll withholding requirements.
- Corporation Tax: The presence of employees overseas can potentially create a ‘permanent establishment,’ affecting the employer’s Corporation Tax liabilities.
Looking to hire overseas?
For detailed advice tailored to your specific circumstances, consult with our experienced team. Ensuring compliance with both UK and foreign regulations is crucial to a successful overseas working arrangement.
For more detailed information or specialised advice on APAs, please contact one of our international tax experts.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg & Co Limited. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please contact us.