Tax Requirements Of Working Abroad For A UK Employer

The coronavirus pandemic has changed how working professionals see ‘work’. The two-year work from home schedule has made people stick to the same routine even after things get back to normal. As both employees and employers have now realised the ease of working remotely, people have been approaching relocation and working from home as a permanent solution.

This scenario includes living in the UK and working for another country’s company and living outside of the UK working for a UK company. Most people, during the pandemic, shifted to their homes outside of the UK but continued working for the UK company. Now, they are still remotely placed but working seamlessly.

Most of the employees have been unable to travel back to the UK even if they want to due to the severe restrictions.

To comply with the new normal, businesses worldwide, including the ones in the UK, have successfully started to implement new schemes, approaches and working techniques that encourage remote working with improved efficiency, productivity and practicality in their employees no matter where they are working from.

The new work from home policies has impacted and complicated the tax implications on people working from overseas in UK based companies. This is why it is to understand what are the tax requirements of working abroad for a UK company.

Permanent Establishment

A permanent establishment is a concept that allows the host country, which is the UK in our case, the right to taxes and corporate revenues created within UK’s own borders. The concept is based on a fixed place where the business operates sufficiently and continually. The three reasons mandatory to fall into the permanent establishment category are –

1. The test of a fixed place of business
2. A revenue creation test
3. Employing sufficient sales employees in foreign countries

Personal tax requirements of working abroad but working remotely for a UK company

The specific tax implications depend on the country you are working from. However, some generic tax implications apply to all employees working abroad for the UK business.

If you work temporarily from a foreign country, in the short term, you continue to remain a UK tax resident and are liable to pay the UK income tax. The stays shorter than 183 days are considered in this case as a short-term working from abroad scenario. This happens because the UK taxes its residents based on worldwide earnings, irrespective of where they worked.

If you do not fall under the UK tax resident category, meaning that you plan to permanently move abroad and work from there, it can lead to an overseas residence. In this case, the employee becomes a resident of both the business’ home country and the country they wish to operate from. In this scenario, the employee will be liable to a double tax agreement between the UK and the country you want to work from, provided that there exists a double tax agreement between the two countries after Brexit.

If you become liable for the double taxation, you can obtain some credit to either a part of all the tax you pay within the country you are working from. Though, you will still be liable to be taxed based on your worldwide income. The credit can be claimed after all tax declarations are in place. When staying abroad working for a foreign business, your host country decides the exact tax liabilities that you have.

Do not hesitate to ask for assistance

Taxation is a complicated topic to even begin with. There are several rules that each country follows, and then company-specific rules to top it. You cannot assume that the tax requirements of working abroad work the same when working in the UK for a UK business versus working from another country but for the same organisation. Factors change, rules change and hence, tax implications also change. An employee’s tax residence status in each country is different, and so are their tax responsibilities and an employer’s legal tax requirements.

This is why it becomes important for each employee to seek the right assistance. There are experts who have the financial, theoretical and practical knowledge about how taxes work, and they can provide you with a top to bottom guide about the same. There are tax specialists in the UK (and your home country) who bridge the gap between the employee and employer to understand tax obligations.

Do not hesitate to seek expert help, as only when you talk to people who actually understand tax, you will know how to proceed further with it, even in complicated situations.

Conclusion 

Paying taxes is a working professional’s moral responsibility. And with the changing norms, it becomes all the more important to understand the rules associated with income tax. Talk to your employer and a tax specialist to understand everything you are liable for and pay responsibly!

Want to speak with a tax professional? Request an introduction now and one of our team will put you in contact with a tax specialist.