Working from home has been necessary for many employees over the last year and now that some of the Covid 19 restrictions are being relaxed there is a lot of press and speculation on whether or not working from home will become our “new normal”.
Having the flexibility to work at home has been a welcome benefit for many employees in not having to travel to work each day and there may also have been cost savings for some employers where they have the systems/ procedures in place to facilitate long-term working from home.
The debate in the press seems to be whether employees want to continue to work from home, return to the office or have the flexibility of both options, and whether employers can facilitate the employees wishes to retain them.
These decisions are however not as straightforward as employees would like, and HR advice may need to be taken re change in contract etc, and tax advice needs to be taken particularly where the employee will potentially be working in a different jurisdiction.
There are limited additional tax issues (necessary travel rules/ use of home allowance etc) where the employee lives and works in the same tax jurisdiction however many businesses have seen employees go home to Ireland, or further afield, this can have different tax and legal consequences for both the employer and employee.
Tax residence of the employee
Working from another country can impact on the tax residency status of an individual. In most cases, where this is restricted to short periods abroad, tax residency will remain in the individual’s home country.
However, working overseas for longer periods can result in the employee becoming resident in another country, meaning that generally they will become taxable in that country on their worldwide income. Residency rules vary in different countries, so it’s important to understand the rules applicable to the country in question and the tax impact that will arise if an individual becomes resident in that country.
By way of example we considered an employee that would have previously lived and worked in London, returning to Ireland ( or anywhere outside UK) to work from their family home during the Covid restrictions – if they spend a significant amount of time living outside the UK, they could become resident in that jurisdiction as opposed to being UK resident, which may significantly change their overall tax position.
Employer – Payroll reporting requirements
The above employee working in Ireland (again relates to anywhere outside the UK), may create payroll reporting obligations for the employer in that country with a requirement for the individual to file tax returns. This can be costly for the employer in having to engage tax advice / payroll in the other jurisdiction, and costly for the employee if their net pay changes.
Whilst the broad principles of taxation can be seen in most jurisdictions, there are always differences in what is/ isn’t taxable and how taxable amounts are calculated.
Tax residence of the employer
Sticking with the above example, if the employee is a director/ senior employee of the UK company, it can alter the tax residence of the company (the jurisdiction where the company is liable to pay tax). A company incorporated in the UK is generally UK resident for tax purposes, however, a company may be regarded as tax resident in more than one country under tax treaty arrangements, if for example it is managed and controlled in another country by the majority of its directors (which could be while they are working from home).
The second risk on the tax residence of the employer, is that the employees’ activities in the other jurisdiction mean that they have created a permanent establishment outside the UK. This could mean that some of the employer’s profits are taxed in the country where an employee is working, as well as in the UK, depending on the employee’s activities.
If you have any employees working for you, from another tax jurisdiction you need to review the tax position for yourself and your employee on an ongoing basis. At Baker Tilly Mooney Moore we would be pleased to assist you. Please contact Angela Keery, Tax Director Email firstname.lastname@example.org or Tel: 028 90323466 if you have any queries.