The recent pandemic has seen a significant shift in how we work, including remote and hybrid working models, which look set to become the norm. This change is underpinned by improved technology and new service providers (e.g Deel, Remote, Blueback, Omnipresent, etc), which enable staff to perform their roles without geographic limitation. Many people are opting to work from warmer climates or moving back to be closer to relatives and loved ones. This offers staff flexibility they often covet, without necessarily negatively affecting productivity – but what financial consequences can this have for an employer?
Below are the top 3 financial issues to consider if you have employees working from abroad.
1. Payroll, Benefits & Tax
- Has your employee notified HMRC if they intend to work abroad? Working outside of the UK for more than 6 months can trigger a change in tax residency and may mean the employee is liable to pay tax in more than one place (although the UK does have many ‘double taxation agreements’ to mitigate this).
- Payroll tax and social security can be comparatively high in other countries, and are not necessarily linked to the employee’s place of contract with a higher cost to both employee and employer a possibility
- Has the employee requested to be paid in local currency and are there exchange rate risks and other charges to consider?
- How easy is it for you to organise for payroll and taxes to be paid in other countries?
- Will staff stay on their existing salary, or will it be adjusted to be in line with the local equivalent, and/or other benefits that are usual/mandatory in that country?
- Also, employees overseas are unlikely to be able to benefit from tax-advantaged employee share schemes such as EMI.
- Are other benefits required or mandatory in other countries? Do you need to adjust any benefits?
- And what about travel and subsistence policies? How frequently do you want/ need them back in the UK office? Can they claim airfares? What about their family? Do they travel on their own time?
- Have you notified your insurers of a change in employees’ work location?
- Are they covered by travel insurance if living abroad? Are other assets such as laptops and phones insured overseas?
- Consider whether you require additional policies to protect staff abroad, such as extra cyber cover, or even kidnap and ransom insurance.
- Do any other insurance policies need to be updated? Are any invalid or redundant?
- Consider benefits such as medical cover, death in service insurance, etc as they may no longer be relevant and/or local provision may be more expensive.
3. Company Status / Corporation Tax
Having staff that work abroad can change a company’s tax status. Most countries have rules that determine when an enterprise has set up a permanent establishment in that country thus requiring a need to pay corporation tax and possibly VAT in that country – the most common being that a fixed place of activity is being used. Having members of staff, particularly sales staff, working from home or an office overseas on a permanent basis could well create this issue, resulting in additional costs, possible need to set up a legal entity such as a branch and cashflow implications.
- Do you need to register for business tax and VAT abroad?
- Are foreign currency bank accounts now a requirement?
- Are other local filings and audits necessary in the foreign country?
- Consider whether this impacts anti-money laundering, data protection and privacy laws – see our other blogs on this.
The cost of getting proper tax and legal advice on all of this also needs to be factored in and caution adopted with some providers who will offer a service without taking the risk of giving you the relevant tax or legal advice.
So, whilst this new-found freedom and flexibility is positive in so many ways, it does potentially come at a significant cost – and this cost could be all the greater if you have multiple staff working in multiple jurisdictions and if the above points are not taken into consideration in a timely and proactive manner.
Budgeting the cost and working out the extra cashflow is critical if your finances are stretched, so get support. If you want to discuss the financial impact of international remote working in more detail EFM can help – drop them an email on firstname.lastname@example.org.
And if you have any questions or need help implementing any changes / updates to your working strategies or policies please get in touch on email@example.com