Trends in thinking about where and how we work continue to evolve post-pandemic, and so have the complexities around making the various different models viable in a business sense.
Work-from-anywhere (WFA) companies tended initially – and unsurprisingly – to be tech giants. They include companies such as Airbnb, Salesforce, SAP, Google and Twitter.
Even outside of this group, WFA employment policies, along with hybrid and remote working models, are now so commonplace that we tend to forget that they were ever regarded as controversial.
‘Once workers are aware they don’t have to be in the office, the question becomes: how far out of the office can they be?’
That is until we consider the myriad complexities these new working patterns bring. Managing tax and other employment risk areas is not insurmountable, but it is nonetheless significantly burdensome for some clients.
Earlier this year, the Office of Tax Simplification (whose future, after Kwasi Kwarteng’s mini-budget threatened to axe it, remains uncertain) began consultation on hybrid and remote working to evaluate the new world of work and its taxation implications.
Overseas complexity
For many UK-based employees, hybrid patterns have become the norm, and from an employer’s perspective, as long as employees work from home in the UK, arrangements will be comparatively simple.
The issues start to escalate when people start working from overseas, as Jason Piper, ACCA’s head of tax, points out. ‘Once workers are aware they don’t have to be in the office, the question becomes: how far out of the office can they be? The whole cross-border question kicks off,’ he says.
Companies may choose to limit risk by stipulating a core set of countries from which individuals can work
So when do supposedly UK-based individuals who work from overseas start to incur income tax and social security liabilities at home? This is a particularly hot topic among clients, says Anne-Marie Welch, tax partner at RSM. ‘There is no new legislation, despite there being a whole new pattern of employment,’ she says.
The answer will vary from one jurisdiction to another, and the length of time spent in that jurisdiction also has a bearing. The UK has tax treaties in place with many countries to mitigate the risk of double taxation on the individual. However, problems persist.
‘We might have in the UK, for example, lots of people who come to work here for short periods of time,’ says Welch. ‘Ultimately, they may well be exempt via a treaty with their home countries. That does not override the employer’s obligation to track, trace and deduct PAYE or have a short-term business visitor’s agreement in place so that they don’t have to do PAYE.’
The compliance issues don’t end there. ‘The first thing a client would have to look at is from a corporate perspective: in the case of an individual working remotely from abroad, does that cause a permanent establishment? The existence of new and even multiple permanent establishments may not fit with the corporate vision of the employer, and the more senior the employee, the greater the risk,’ says Welch.
An employees’ market
Many clients are having to look at their employment policies with a view to tackling the proliferation of requests coming from individual employees because they want to remain competitive in a difficult employment market, adds Welch.
Even a partial work-from-anywhere or hybrid policy will bring additional costs
‘They want to be the employer of choice, so they are very interested in benchmarking as to what their competitors and others are doing in this space,’ she says.
RSM is seeing varying policy responses, with companies putting in place policies that limit people on the number of days they can work from another jurisdiction. They may choose to further limit risk by stipulating a core set of countries from which individuals can work, based on their popularity and risk profile.
That being said, many companies need to broaden existing policies to attract talent into positions in UK-based companies. Recruiters are working internationally to fill positions that cannot be filled from within the UK, Welch points out.
Centralisation option
If a company has a sister entity in a given jurisdiction, there may be an option to transfer the individual’s employment to that entity. Another suggested approach, says Piper, is the idea of a central employment company where you have employment contracts centrally managed in a unit staffed by experts who understand the issues in different territories. ‘For bigger companies that might work as part of global business services,’ he says.
Other factors to take into consideration include currency risk. If individuals are employed by a UK company, they may be paid in sterling, but may be required to pay tax in euros, if they’re based in the EU. ‘If all of a sudden they want to be paid in euros, how will that work in terms of benefits still driven by the UK?’ asks Welch.
Broader risks
In many cases, there is also a need to raise awareness among clients on broader regulatory requirements and risk factors, Welch says.
Within the EU, there are working-time directives and other employment regulations. Companies also need to investigate whether an individual has the legal right to work in a given jurisdiction.
And then there is cyber and IT security. ‘It could cause significant headaches where people might want to transfer sensitive information in or out of different territories,’ says Piper.
As Welch points out, all these issues are costly in terms of time and money. There is a thirst for information and know-how and, even when they are armed with good advice, even a partial WFA or hybrid policy will bring additional costs, such as running additional payrolls and monitoring other jurisdictions for tax or legislative changes.
All this amounts to a considerable downside for businesses.
More information
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