What Are the Tax Risks of Working Remotely Overseas?

Categories: Business, Tax

Studies have revealed that 40% of the UK’s workforce is still opting to work from home in light of the COVID-19 pandemic.

However, there’s another option which might pique your interest. With working from home becoming the new norm for millions of people, the prospect of heading to a foreign land with, let’s be honest, better weather, is rather appealing.

Certain countries are also cottoning onto the idea of welcoming foreign nationals for ultra-remote working opportunities. For instance, you can now obtain a one-year visa for working remotely in Barbados which costs around £1,500.

However, before you book that plane ticket and start packing your beach-compatible laptop stand, there are a few tax matters to take into consideration.

Is there a tax risk… and do I need to tell my boss?

If you’re working remotely from abroad but connected to your UK base, there may be overseas tax risks to account for both for you and, possibly, your employer. This is why it’s vital you tell your boss if you want to head abroad (and not least because it’d be courteous to do so!).

This is a complicated area and needs to be reviewed on a case-by-case basis, but your circumstances, working arrangement, and the country in which you undertake the remote work will all come into play.

How does working remotely abroad affect UK income tax?

There are a number of factors that influence the extent to which you’ll remain subject to UK income tax while working remotely abroad.

For instance, if you spend 183 days or more in the UK during the tax year, you’re considered a UK tax resident. If you spend less than that amount of time in the UK, you’ll need to apply for some relatively complex tests which take into account several factors to determine your tax residence status.

Broadly speaking, the following rules apply:

  • if you’re a UK tax resident, you’ll need to pay UK income tax on your earnings as they arise, even if the work is undertaken on foreign soil; and
  • if you’re not a tax resident in the UK, you’ll only be subject to income tax on earnings from duties you perform while in the UK.

Is National Insurance affected by working remotely abroad?

The rules for this vary, and you’ll need to check the government’s guidance on whether UK National Insurance Contributions (NICs) need to be paid while working overseas.

There are three elements which dictate the rules when it comes to NICs while working remotely overseas:

  1. Whether you’re operating from a European Economic Area (EEA) country or Switzerland (this could change after Brexit).
  2. The ‘reciprocal agreement’ that might exist in the country from which you’re working.
  3. Whether you’re working somewhere else in the world outside of the EEA.

What about PAYE?

Even if your employer agrees that you can work abroad, they’ll probably still deduct tax and National Insurance. It’s possible to get clearance for them not to do this but the employer needs to apply for a special tax code.

More likely, if you wish to claim that you were non-resident, you will have to register and file a tax return claiming a refund on the basis you carried out your duties abroad. We have done this for people but do expect HMRC to challenge the decision.

Expenses and data protection: further headaches?

A quick note on expenses. If you’re working mainly abroad for your company but occasionally head back home, you may not be able to claim expenses for the cost of travel and accommodation without triggering a tax liability.

It’s important you work closely with your employer on this and ensure all the potential reasons for claiming expenses are fully accounted for.

What are the overseas tax risks?

You’ll need to take specific advice on the country from which you intend to work when it comes to their own tax implications.

However, there are some common risks for your employer. For instance, your presence in that country may create a permanent establishment for the business there, leading to local tax issues.

There’s no two ways about it: as attractive as working remotely from abroad may be, it’s littered with tax implications. That doesn’t mean you should avoid it, but it does require thorough research before you commit.

If you’re confused by any of the topics covered today or would like to look at the tax implications of working remotely overseas in more detail, just get in touch with the Chandlers team. We’d be happy to help.