UK Tax Implications of Overseas Employees

Over the last few weeks and months there has been a significant increase in the number of queries from clients who are looking to either recruit employees directly overseas, or accommodate their existing employees in relocating/returning ‘home’.  Anecdotally this seems to be mostly as a result of the pandemic and the way in which companies have adapted over the past 12 months to successfully working remotely – it is expected the trend to continue.

Below I have briefly summarised some of the headline points that should be considered in these situations, so that you can be equipped and understand that it is rarely a straight-forward exercise to have employees working overseas. There can be some real administrative and financial impacts that should be considered.  For example:

  • Depending upon the employee’s role/seniority, and possibly their place of work, they may be creating a ‘permanent establishment’ risk for the company in the overseas location, which could lead to corporate tax obligations there.
  • There may a withholding tax (i.e. PAYE) obligation arising on the employer in the overseas location.  This would involve registering with the overseas tax authorities and running a payroll in that country in its own currency (which creates an FX rate risk).
  • There may also be a continued PAYE obligation in the UK.  Dual withholding creates a real cashflow obligation for the employee, which may need to be mitigated.
  • The social security (NIC) outcome will vary depending upon the country, and it can be complex to analyse, depending upon how long the employee is going to be overseas, whether the employer has a ‘presence’ in the other country and whether the employee will continue to visit the UK for work purposes.  It is quite possible that paperwork will be required from HMRC (or the overseas authority) to certify the position, and there is a risk that the Company will be liable for the withholding of Employer and Employee social security contributions overseas.

The above just gives a flavour for some of the issues that need to be considered.  Unfortunately there is no ‘one size fits all’ answer, as every country will have its own rules which will need to be considered.

If you have further questions around employing overseas we would be more than happy to talk over your position and help connect you to the advisors you may need overseas to either ensure that you do not have any exposure, or to help guide you through the process if you do.

In some cases we may already have an idea of the implications and/or the costs involved, so please don’t hesitate to get in touch.

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