Whilst there are various reports of millionaires migrating from the UK in response to potential tax changes in the Budget, this appears to be part of a wider trend of those wanting to work more overseas, say RSM's Natalie Shaw and Tom Petty.
Research from RSM UK’s ‘The Real Economy’ report found that a third (33%) of organisations have responded to staffing challenges by allowing employees to work remotely outside the UK, offering this flexibility to attract and retain talent.
With “difficult decisions” ahead in the “painful” Budget, we could see even more employees looking to take this opportunity to escape the doom and gloom. In turn, employers need to protect themselves against unforeseen implications and costs. Where businesses offer flexibility, they must also consider the additional tax risks this gives rise to and in the case of financial services, potential regulatory concerns.
There are many risks for employers to consider, from corporate tax, income tax, social security, immigration, employment law and regulatory perspectives. No broad-brush rule applies, so each unique case needs to be considered based on duration, location and nature of the work undertaken overseas.
There may be implications if an employee working abroad has created a ‘permanent establishment’ in another country for their UK employer. Depending on the work performed and the country they are in, this could create an additional corporate tax liability.
If an employee works abroad, overseas income tax and social security may be due, and there may be a payroll obligation for the employer too. The question of who pays social security contributions in which country must also be considered.
A further concern for employers is that an individual who works abroad, even for a short time, can obtain protection under the local employment legislation of the country they are in regarding things like holiday pay, minimum pay and on termination of employment.
Employers should also be aware of immigration implications. Individuals may believe they can enter a country as a ‘visitor’ and work remotely there without first obtaining a work visa. Employers need to undertake a ‘Right to Work’ compliance check, and may have to satisfy local reporting requirements regarding individuals based in that location. There are significant consequences for both individuals and businesses if they get this wrong.
Different health and safety laws may be applicable when working abroad, and UK employers have a duty to protect the health, safety and welfare of their employees, irrespective of where they are working.
The challenges can be even more complicated for those businesses in the financial services sector, as it’s also necessary to consider any regulatory implications of individuals working overseas. Since the pandemic, remote working has become a key draw for new employees looking to change jobs. It’s vital that regulated firms balance out the freedom of remote working with meeting regulatory obligations.
Considerations vary greatly across each sector and will depend on the seniority of the person in question. However, generally, all firms will need to ensure that they:
• are able to supervise, monitor and oversee their employees;
• can demonstrate that the person is operating in line with internal policies, processes and procedures;
• ensure working in a different jurisdiction doesn’t expose the firm to enhanced risk.
Whilst the FCA does not apply a ban on individuals working remotely, either in the UK or abroad, the emphasis is placed on the regulated entity (employer) to ensure that they have gone through a sufficiently robust diligence process so that any potential risk is identified and addressed prior to allowing remote working to commence.
Firms will need to demonstrate that the risk assessments are specific to individual roles. Considerations of significant risks like financial crime should be considered, but also the risk that a lack of one-to-one time between staff members does not impact the development of employees.
There’s clearly a lot to consider, not least the tax implications, before allowing staff to work abroad.