Demand for guidance on hybrid and overseas working tax implications

December 23, 2022 Marketing

There is a need for the government to align its tax policy with modern working practices including hybrid and overseas working, a call for evidence has found, including clarifying how business travel and commuting should be taxed.

The Office for Tax Simplification, which is set to close by the end of this year, launched a call for evidence around the tax considerations for hybrid working and the growing number of people choosing to work overseas while remaining employed by a UK-based organisation.

Hybrid working has remained the preferred working practice for many employees since the Covid-19 pandemic, when around 40% of the UK workforce began working from home for at least part of the week. However, this has introduced new tax policy or compliance issues, the Hybrid and distance working report says.

“It became clear during our work that employers and employees have new questions on tax policy and administration (including on guidance) arising from new working patterns. Where hybrid or remote working takes place in a different country from the main business location, there is a wide range of legal and employment issues; tax and social security issues were often an afterthought, with resulting compliance challenges,” it says.

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Of the 425 respondents to the call for evidence, 60.9% were allowed to work from home but were required to visit their employer’s premises some of the time, while 19.8% worked remotely but chose to go into the office some of the time. A further 17.3% always worked remotely.

Some 7.7% had agreed with their employer to work from overseas, while 1.5% had chosen to work from overseas but had not told their employer.

Handling expenses was the main issue identified by respondents in relation to domestic hybrid working, which “potentially offers the opportunity to revise the whole approach adopted in the UK”, the report says.

Commuting costs are not a tax-deductible expense, whereas the costs of travelling to a temporary workplace are. Some hybrid workers suggested to the OTS that they need the encouragement of tax relief to travel to the office.

Respondents suggested the government should consider introducing a general employment allowance, which would give workers a set amount to cover home working costs and travel to offices.

There were also issues in relations to benefits such as cycle-to-work schemes which require the bicycles and accessories provided to be used regularly for their commute. The report says the conditions of such schemes are unlikely to be met by hybrid workers.

Issues raised with international working included the risk that an overseas-based worker would create a taxable presence for an organisation, or a “permanent establishment”; and complications around providing social security in overseas territories.

The policy and administrative changes proposed by respondents include:

  • a review of the legislation surrounding temporary workplaces
  • clarification around the treatment of business travel and commuting for hybrid workers, such as the development of an online tool similar to the Check Employment Status for Tax tool used to establish worker status
  • exempting home broadband costs for home workers, whether employer provided or reimbursed, from income tax and national insurance contributions
  • refocusing the cycle-to-work scheme by removing the condition for the equipment to be used mainly for journeys to the workplace
  • the government expanding its network of social security agreements and update existing ones to clarify the position for multi-state workers.

Lee McIntyre-Hamilton, a tax specialist at Keystone Law, said the current rules around tax and remote working were devised in the 1990s and are no longer fit for purpose.

“The UK tax rules for hybrid working in the UK are complex, nuanced, subjective in places and anything but clear. Figuring out what expenses can and can’t be reimbursed to employees tax and NIC free can be a minefield for employers and employees alike,” he said.

“Cross-border remote working presents even more challenges. For example, many UK employers don’t realise that they are likely to trigger an obligation to register as a foreign employer and to operate social security overseas where they have employees working indefinitely from home in an EU country. These rules apply to the UK even though we have left the EU and even where the UK employer has not corporate presence outside the UK.”

He said that employers needed more clarity from the government as they embed hybrid and remote working practices.

“With UK hybrid working, the government should take stock of what employers have said, scrap the current tax regime for hybrid workers and start again to develop a simple, straightforward and clear set of rules. Building on the existing regime (which is often the tendency in these circumstances) will likely mean more confusion. Only with a fresh start in this area can the UK ensure that its tax landscape remains competitive and business friendly when it comes to hybrid working,” said McIntyre-Hamilton.

“For international remote working, the government can help by developing straightforward and clear guidance on the issues that employers need to consider in the UK and overseas. Currently, employers are mostly confused and left to navigate the pitfalls themselves.”

Source: Personnel Today

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