Tax advisers Frank Hirth are on hand to answer any questions employers and employees might have about getting back to business
How has Covid-19 impacted Doing Business in the UK?
It’s fair to say that we have all been affected to some degree but some businesses have been able to remain agile and adapt well to the WFH environment and continue to provide their services remotely. Unfortunately, others have seen their business and sales income stop overnight with the suspension of domestic and international travel for non-essential services. You cannot beat a face to face meeting with clients and contacts to build good working relationships but the work ethic during lockdown will no doubt impact the way in which we all adapt our working practices moving forwards.
What about cases where an employer cannot foresee a full return to work for employees?
Under the Government’s furlough scheme, a phased return to work can be subsidised until October. However, as Government support diminishes, the queries we are receiving in relation to redundancies are increasing as businesses need to consider whether they can retain their full workforce.
Could working from home (WFH) be the ‘new normal’?
Potentially, lockdown has shown us that we can still communicate effectively especially with the use of video calls so it’ll certainly increase, as businesses look to reduce their overhead costs such as office rents. Salary expectations could be reviewed due to the reduction in commuting costs, which in turn may reduce the need for redundancies. However, this would require the employment contracts to be amended and they should be reviewed by a suitable qualified legal professional.
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What if I’m a UK employer and my employee wishes to remain aboad and work remotely?
There are a number of points to consider here, such as whether the employee can legally work in that country, whether they need to pay tax in that country and whether them working in that country means that some of your profits are taxable in that country.
If the employee pays tax in their home country, does that mean they do not need to pay tax in the UK too?
It can mean that tax is payable in two countries, especially if the employee physically works in both countries. Employment income is generally taxable in the country where the employee is performing the work, not necessarily where the employer is based, or where the employee ordinarily pay tax.
Could an employee potentially end up with a double tax charge?
The employee should never end up paying tax on the same income twice, they might need to pay tax in both countries, but not necessarily the amount they might think. In many cases, it might be possible to stop paying tax in the home country
Can you give an example of how tax could be payable in two countries?
Yes, supposing the employee is sitting in the UK working for an employer based in the US. The UK would be able to tax the salary, but it might also be taxable in the US if they are a US citizen etc. Say, the employee pays UK tax at the 40 per cent rate and let’s say the tax rate in the US is 35 per cent. It’s likely that the employee will pay the 40 per cent tax rate in the UK, but that this amount will be offset against the 35 per cent payable in the US. So, you won’t have a liability in the US and will in fact have excess UK tax credits to carry forward.
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Can an employee have their salary paid into a bank account in a different country?
Yes, absolutely. Often, it’s thought that this has tax implications but it doesn’t and it doesn’t determine where salary is taxable either. If someone is working full time in the UK, where their salary is paid for those workdays is irrelevant
Can you explain how overseas workday relief can be a useful claim for some employees?
If the employee works partly in the UK and partly overseas and meet certain conditions, they will only pay UK tax on the earnings attributable to their UK workdays. The relief is only available for the first three years of residence so to maximise a claim they need to time their arrival into the UK early in a tax year, instead of towards the end.
Can you give an example of how overseas workday relief works?
Sure, say the employee spends 40% of their time working in the UK and 60 per cent overseas. If at least 60 per cent of their earnings are paid directly into a non-UK bank account and they don’t remit that money to the UK, they should only pay tax on 40 per cent of their earnings.
What happens if an employer taxes 100 per cent of an employee’s earnings?
That’s fine. The employee should file a UK tax return to claim the refund. They will need to report 100 per cent of the earnings on the tax return but back out the amount relating to their overseas work.
Can an employer pay an employee’s accommodation costs in the UK without tax implications?
That can be the case. It depends on whether the employee can say they are working in the UK on a temporary basis. If they are sent by their employer to work in the UK for a period of up to two years, their place in the UK might be considered temporary and their travel and accommodation costs are exempt from UK tax. They will undoubtedly need to file a tax return.
What about social security/NI? Will an employee have to pay this in two countries as well?
You shouldn’t pay in two countries If someone is sent by their employer to work in the UK for a given period of time, say five years, it is likely that they will chose to continue pay social security in their home country. If however, the individual has agreed that they can work remotely in the UK on permanent basis, it is more likely that they will need to pay UK national insurance and should stop paying home country contributions.
What if an employee spends time working in multiple EU countries?
The UK has multi-state rules for people working in two or more EU countries at the same time. Where contributions are payable depends on where your home is and how much time you spend working in that country.
If an employee is asked to obtain a National Insurance Number – is that the same as a National Health Number?
No, it’s not the same. A National Health Number is needed for accessing NHS services, whereas a National Insurance Number is required when you need to pay UK social security contributions. If you have a biometric residence permit you might have a National Insurance Number. If you don’t you must apply for one.
Would an employee need to file a UK tax return?
AIt’s not a standard mandatory requirement like in the US. HMRC sets out the cases where tax returns should be filed. Search for ‘check if you need to send a Self-Assessment Tax Return’. You need to file a tax return if you have paid insufficient tax and will want to file a tax return if you have overpaid tax. If you are coming into the UK, it can be possible to exempt non-UK income or gains from taxation, but there are conditions to this, and a claim might need to be made on a tax return.
Does the UK have joint filing?
No, the UK has independent taxation. This means that your tax return should report your share of income and gains arising.
What tax filings obligations would an employee’s family have to consider?
Your family will each need to consider the guidance from HMRC.
Can they get NHS treatment?
Some NHS treatment is free and available to anyone who needs it, such as seeing a GP. Whether you can get other free NHS services depends on the length and purpose of your residence in the UK, not your nationality. You have access to free NHS treatment if you are a citizen of the EEA or have permission to stay in the UK for more than six months. After 31 December 2020, EEA citizens will need to have status under the EU Settlement Scheme
Can you elaborate on residence?
Residence is a tax term and helps determine how much tax you pay in a particular country. If you are considered tax resident in a country, you might need to pay tax in that country on your worldwide income and gains.
How would you know whether you are UK tax resident?
The UK has a step by step guide on how to determine your residence status. This is called the Statutory Residence Test. It’s in three parts, which should be followed in the order set out. The first part will identify people who are non-UK resident, the second will identify UK resident people. The third part is called the ‘ties test’ and looks at whether you have spent time in the UK in previous years, how many days you spend in the UK in the current year and what ties you have to the UK.
Can you explain what domicile is?
Domicile is a legal concept which describes the country in which you officially have, or you believe to have your real or permanent home. It looks at your long term intentions, rather than your short term facts which determine residence.
How would you know whether you are UK domiciled?
Unlike the statutory residence test, the definition is not set out in tax legislation. HMRC will say that if someone has an intention to remain permanently or indefinitely in the UK, then they will be UK domiciled. I often say this is an emotional test, where in your heart of hearts do you feel you belong long term. Having said this, long term UK residents can be treated as UK domiciled.
What does being non-UK domiciled mean?
A non-UK domiciled person can arrange their financial affairs to minimise the tax they pay in the UK. There are lots of ways they can achieve this but it requires planning and you will undoubtedly need to file a tax return. Advice should be taken.
If you do not live in the UK anymore, why would you need to file a UK tax return?
UK sources of income remain liable to UK tax, even if you no longer live in the UK. A good example of this is rental income on UK property. This remains taxable in the UK and, if you need to pay tax on that income in another country, you should be able to reduce that tax by the amount you pay in the UK.
Can you continue to pay UK NIC if you don’t live in the UK anymore?
Yes, but there are conditions to this in that you need to have lived in the UK or paid UK National insurance contributions for at least three years.
What if you spend some time working in the UK, even though you don’t live here anymore?
You will need to establish whether you are resident in the UK and your employer will need to establish whether there is a requirement to withhold UK payroll taxes from your salary.
What if an individual returns to the UK within a few years?
A – The UK has what is called ‘temporary non-residence rules’ which mean that in some cases, income and gains arising whilst you are away from the UK might be taxable in the year you return.
Frank Hirth’s team has only covered the main topics of conversations that are currently trending.
Please do not hesitate to get in touch with Leigh Collins, Associate Director at Frank Hirth or Debra Blacklock at Senior Tax Manager at Frank Hirth with any questions or scenarios that you would like to discuss.
