Desert island desk?
Justine Riccomini and Dawn Dickson urge members to explore the options with their clients where their employees have found themselves stuck overseas during the pandemic.
Do your clients know where their employees are?
The ICAS Tax team has recently come across different situations whereby employees have found themselves overseas for work or pleasure and then not been able to travel back to the UK due to the pandemic. What tax problems can this potentially create?
Example 1 – Hans goes to Germany
Hans graduated from Glasgow University and stayed on, marrying his Scottish girlfriend and now works in Edinburgh for BigBankplc. They have a family and have bought a home in Croy. Hans is UK resident for tax purposes. In March 2020 he goes to Germany on business and is stuck there for longer than the two weeks he intended to stay to work on the project, due to lockdown measures in one or the other of the countries. He returns in June, 10 weeks after he set off. Luckily, he has his lap-top with him and continues working without disruption.
Hans visits Germany again on business for three weeks to conclude another project in October 2020.
Later in the year, he and his family go to Germany again to spend the Christmas holidays with family. Their intention is to return in the New Year, but this is thwarted by further lockdown measures. Hans fortunately has his lap-top with him again and works from his parents’ home in Heidelberg. The family is unable to return to Scotland until the end of March. In total, Hans has spent 27 weeks outside the UK.
Example 2 – Saanvi goes to Sri Lanka
Saanvi came to the UK to work many years ago and works in tourism. As part of her role she travels regularly to Sri Lanka and has in fact already spent 140 days there on business over the course of the year. She decides to go there for her Christmas holidays as the UK offices are closed for the Christmas break. She takes her laptop with her by force of habit, but is not intending to work. Her employer doesn’t know she is there, staying with family, as she will be returning in time for the re-opening of the office in the New Year.
Due to lockdown measures, Saanvi discovers just before Christmas that she is unable to return to the UK until late February – which involves her having to spend a further 10 weeks there. During that time, she carries on working on her laptop. Due to her productivity and continual video conferencing engagement, her employer is not even aware that she is still overseas!
What are the issues which need to be considered?
Double Taxation Agreement (DTA)
The first thing to do in both cases is to have a look at the relevant Articles within the DTA for each country and examine them on a case by case basis. Some countries have made statements to allow for relaxations in the rules somewhat due to the pandemic, but others have not and are continuing to strictly apply the rules.
Permanent Establishment (PE)?
The main consideration for the UK employer is whether, by reference to the seniority of the employee, the nature of the work carried out and the length of time spent in the overseas country, whether a PE has been established. This could unwittingly confer corporation and other taxes liabilities on to the business – not a nice surprise if the stay was accidental and the person was simply working to keep busy. Consider whether the client’s employee has actually carried out any functions which may have inadvertently set up a branch or resulted in sales or administrative functions being set up.
Income tax and residency
Most countries tend to operate a 183 day rule which is the point at which an employee becomes resident of that country in a year – but beware – some DTAs are based on the UK tax year while others are based on a calendar year. Income tax could become payable if the stipulated maximum number of days is breached.
Social security, pension arrangements and right to work overseas
Examine any Bi-lateral social security agreements between the relevant country and the UK and decide whether there are any implications arising for the individual or the employer for social security and pension obligations, and if the worker is not a national of that country, whether they have the right to work there. Is a work permit or visa required?
Some employment law considerations
Other considerations include employee liability insurance and ensuring employers are covered for employees working abroad, health and safety responsibilities and employee rights – has the employee’s working from home pattern since the start of the pandemic conferred upon them a continuous right to continue to work from home when the pandemic is over? Can the employee establish jurisdiction to make any employment claims against the employer outwith the UK (causing practical difficulties and potentially increasing costs for the employer)?
If an employee was permitted to return to their home country at the start of the pandemic and now does not wish to return to the UK, saying that they can work just as effectively in their home country, what happens then? Other issues may include an impact on their immigration status if the employee is not a UK national and has a prolonged absence from the UK; and Data Protection issues if an employee is working outside the EEA in relation to the possibility of triggering overseas data transfer requirements.
Is HR managing the future work strategy?
It’s worth making sure that the client’s HR team are on top of things and that they are checking with the employees as to where they are and how they are managing their work. Has the future work strategy of the business changed? Does the employer require to record the current working arrangement as temporary in a side letter?
Does your client require specialist advice?
Don’t forget that as an adviser, and for the sake of your ICAS membership and PII, it is not necessarily a good idea to step outside your comfort zone and advise on complex matters that you are not familiar with such as employment law, expat tax issues or HR related matters, for example. Paying a third party for specialist advice may be beneficial in the long term, and ACAS has a lot of useful information available.
UK Transition edition of the Employer Bulletin
On 22 January 2021, HMRC published a UK Transition edition of the Employer Bulletin, which contains a roundup of previously published information and support.
The special edition contains information on the new rules for:
- trading with Europe
- business travellers
- social security coordination
Dawn Dickson is a partner at Eversheds Sutherland LLP in Edinburgh. She can be contacted on DawnDickson@eversheds-sutherland.com.
If you wish to contribute to the debate
Include a call to action at the end of the article, such as a link to find out more about the topic. If you wish to contribute to the debate, why not email the tax team on firstname.lastname@example.org?