By Julie Hamilton, Tax Manager
The pandemic put a spotlight on the cross-border tax situation impacting businesses and their employees. When the world moved to working from home, cross-border workers found they were liable for double taxation and a host of other complicated obligations, just for working from their spare room or kitchen table like their colleagues.
Three years on, the hybrid model remains as one of the lasting impacts of the pandemic, and the issue of cross-border worker taxation has not gone away. The current situation is particularly challenging in the North West, where local companies employ individuals living in the Republic of Ireland, sometimes just miles across the border, and vice versa.
If Northern Ireland is to continue marketing itself as an attractive destination for investment with leading expertise in everything from advanced manufacturing to cyber security, the tax problem will not be confined to just the North West, however, but could hinder inward investment right across the region.
Businesses are seeking to lay new foundations for growth and take advantage of dual market access to the UK and EU following years of uncertainty over Brexit, but the realities of operating a payroll in two different jurisdictions with varying tax reliefs and completely different tax years is seen as far from ideal.
Transborder workers’ relief mitigates this in part for ROI residents working and paying tax in NI, but only if the work is carried out outside of the individual’s home country (ie in NI), meaning it is not available if they work from home in ROI.
In addition, a business which has employees working in another country needs to consider whether the overseas employees could have created a “Permanent Establishment “abroad, which would lead to additional tax liabilities for the employer.
Then you have the questions over where the individual pays social security, how their pension contributions are operated, and in which jurisdiction do they qualify for maternity pay or sick pay? Combined, these unanswered questions mean that in reality, being a flexible and accommodating employer and remaining competitive in today’s recruitment climate is not that easy at all, and neither is sending an employee to work overseas for even six months.
That said, modified payroll systems that operate across the two jurisdictions and consider their varying tax reliefs are available. Once established, they can automate double tax payroll and can be customised for companies with foreign tax obligations too. This is a solution that will work for some businesses, if put into practice with the support of a tax professional.
What remains, however, is the mismatch over pensions and employee benefits, which is unlikely to be settled in the absence of mutual cross-border tax agreements with Ireland. Detracting also from any incentives or grants available to foreign businesses hoping to set up in the area, it is also serving as an obstacle to investment.
To make this place more agile and receptive to investment, there is a need for alignment on cross-border worker taxation.
To discuss any aspect in more detail please get in touch with Julie Hamilton, Tax Manager E: juliehamilton@bakertillymm.co.uk or Tel: 028 9032 3466