Working remotely for a UK employer while overseas

Introduction

If you are employed in the UK, your employer may ask you to work overseas temporarily.

Alternatively, you might wish to work remotely for your UK employer while overseas – for example, you may be a migrant worker temporarily returning to your home country. For this, you might think that all you need is an internet connection to work from anywhere in the world. Unfortunately, it is not that simple!

Working overseas can trigger all sorts of tax, social security and other legal consequences for both you and your employer. All these need to be considered separately.

If you just spend a few days working overseas, this is unlikely to trigger any unexpected liabilities. But the longer the amount of time you work overseas, the greater the risk.

Income tax

For income tax purposes, the heart of the issue is that if you physically carry out duties overseas then, subject to protection under a double taxation agreement, usually the other country will seek to tax the income you receive for those duties.

The fact you might work for a UK employer, under a UK contract and receive your pay into a UK bank account doesn’t generally change that – though you will need to check the rules of the country concerned.

At the same time, you may continue to be taxed in the UK if you continue to be tax resident here. This is because, like most countries, the UK generally taxes its residents on their worldwide income.

Therefore, there are broadly three possibilities for how income for duties performed overseas could be taxed:

Short-term working overseas

This is considered to include working overseas for less than six months.

The employee will typically continue to be taxable in the UK on their employment income.

Generally, the employee will not be taxable in the overseas country. However, the employee, or their employer, may have reporting obligations in the overseas country.

Medium-term working overseas

This is generally considered to include working overseas for at least six months.

The employee will typically continue to be taxable in the UK on their employment income, but usually there will be a foreign tax credit for any tax paid in the overseas country.

The employee is typically also taxable in the overseas country.

Long-term working overseas

This is normally considered to include working for at least one UK tax year outside the UK.

The employee will not typically be taxable in the UK on their employment income.

The employee is normally taxable in the overseas country on their employment income.

However, while the above examples are a starting point for understanding the likely position, there are several exceptions.

Tax residence

To get a better idea, you need to work out what your tax residence position will be. This means considering separately:

1. whether you will ‘acquire’ tax residence in the country you are going to,
2. whether you will ‘break’ UK tax residence, and
3. if you are resident in both, where you are treaty resident (this basically means the country in which your residence is strongest – for people who usually live and work in the UK, this is likely to be the UK).

As a rule of thumb, your risk of becoming tax resident in another country becomes significantly higher once you spend more than six months (183 days) in that country. But you could become tax resident there even if you spend less time than that.

But even if you don't become resident there, you may still be taxed on any employment income you earn while you are there unless you are protected by a double taxation agreement (see below).

You should then consider whether your UK tax residence position will change because of physically being outside the UK. In most cases, if you plan to be outside of the UK for less than a complete UK tax year, then you will usually remain tax resident in the UK.

Given that it normally takes less time to trigger residence overseas than it does to break UK tax residence, it is perfectly possible to be resident in both countries. In this situation, you would need to consider the double tax agreement (if one exists) between the two countries to resolve any double taxation which then arises.

Double tax agreements

If you are either:

• remaining resident in the UK and not resident overseas, or
• dual resident in both the UK and overseas but ‘treaty resident’ in the UK,

then your next step is to determine whether the double tax agreement between the UK and the other country protects you from being taxable in the overseas country, despite the fact you are physically working there.

You will need to look at the ‘employment income’ article, which usually includes something like this, but it can vary:

…remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a)  the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and
b)  the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
c)  the remuneration is not borne by a permanent establishment which the employer has in the other State.

To make sense of this, you should substitute the term ‘Contracting State’ with ‘the UK’, and ‘other Contracting State’ with the other country. In most cases, what this means is that provided that you spend no more than 183 days in the other country and you work for a UK-resident employer who bears the cost of your employment, you would usually continue to be taxed only in the UK and not in the other country.

Unfortunately, this isn’t the end of the story. It still may be the case that there are some withholding or other compliance obligations in the other country. You will need to check this on a case-by-case basis.

If you are unable to get protection under the double tax agreement (for example, there is no double tax agreement, or you spend more than 183 days there), you should expect to be taxable in the other country on your income for duties performed there. In this situation, you are likely to need to file a foreign tax return and there may be withholding obligations for your employer.

If you are also taxable in the UK on this income, then double taxation will arise. This would normally be resolved by taking a foreign tax credit on a UK self assessment tax return.

Social security

Social security needs to be considered entirely separately from income tax. Even if you are not taxed overseas, you may still be liable to pay social security contributions there. It is also possible to continue to be liable to UK social security (National Insurance) even where you are taxed overseas and not in the UK.

If you are liable to social security overseas, then it is likely that your employer may also be liable for employer’s social security in that country. Your employer may also have withholding obligations as a result.

Like income tax, the starting point is to assume that you could potentially be liable to social security in the country where you physically carry out your work.

However, just as there may be a double tax agreement which protects you from exposure from income tax in that country – there may be a social security agreement which does the same for social security purposes. This agreement may be bilateral (between two countries) or multilateral (between several countries). EEA countries and Switzerland, for example, have a multilateral social security agreement.

You therefore need to consider whether there is a bilateral or multilateral social security agreement between the UK and the country you are considering working in. Then you need to consider whether that agreement protects you against social security in that country.

Most agreements contain provisions that state you remain liable to your home country social security system if you are sent overseas by your employer. However, if instead you choose to work overseas (albeit with your employer’s consent) then it is not clear whether these provisions will apply. We understand that, in practice, if the arrangement is by mutual agreement then it could be considered that this condition is met: the employer can agree to send the employee overseas at the employee’s request. In any case, you should consider whether an A1 certificate, or certificate of coverage, is appropriate to protect you (and your employer) from exposure to social security in the host country.

Note that, if you are moving to an EEA country (or Switzerland), then the co-ordinated social security rules apply for moves from the UK which started before 31 December 2020. If your circumstances remain unchanged, you may continue to be covered by the UK’s withdrawal agreement from the EU.

Otherwise, or if you move for the first time from 1 January 2021, the position for EU countries is covered by the terms of the new UK-EU protocol on social security coordination. Note, though, that under these rules it is not possible to remain in the UK National Insurance system if the remote working arrangement is expected to last more than two years.

Where you are not protected by the terms of a social security agreement – or if one does not exist – then you need to consider the domestic social security laws of both countries to determine where you are liable.

Unfortunately, it is not possible to discuss all the different possible scenarios in this article. You will therefore need to take advice depending on your circumstances.

See also NIC in cross-border situations.

Employer consequences

The fact you are working overseas may have other consequences for your UK employer, for example:

Payroll withholding

Once you have established your income tax and social security position, your employer will need to establish whether or not they have any withholding or other compliance obligations in the other country in respect of your presence there. For example, if you are liable to income tax in the other country, then your employer may need to collect and pay over foreign withholding taxes each time you are paid.

Corporation tax and ‘permanent establishment’

You should also be aware that your presence and activity overseas could mean that your employer becomes liable to corporation tax (or a foreign equivalent) if it is sufficient to amount to a ‘permanent establishment’ for your employer in that country.

If your place of work overseas is not a ‘fixed’ place of business which your employer can use (for example, a temporary home office), and the overseas working arrangement is temporary, then the risk of creating a permanent establishment would generally be low. The OECD has published guidance on this in the context of the coronavirus pandemic which may be useful.

Other considerations

We cannot provide an exhaustive list. However, the following considerations may be relevant:

• immigration law: do you have a right to work in the overseas country under their immigration laws, and do you need a visa to do so?
• employment law: for example, are you or your employer in scope of foreign labour laws because of your working overseas?
• data protection: do you handle client data, and if you propose to do this overseas, are you covered under your employer’s data privacy policy?
• employer liability: are you covered for the work carried out overseas under any public liability insurance your employer may have?
• health and safety: your employer has certain legal responsibilities regarding your health and safety which will need to be reviewed if you change your workplace
• medical insurance: if you have private medical insurance provided by your employer, does this cover you while you are overseas?
• travel and home insurance: do any policies you have cover you for extended stays outside the UK?

Further help

If your working overseas is at your own request, it may be the case that your employer is supportive of that, particularly if they do not consider that it will have any impact on the work that you do. However, as this guidance has highlighted, working overseas can have other implications for both you and your employer.

With any cross-border employment arrangement, it is likely that both you and your employer will need to seek advice. A Chartered Tax Adviser who specialises in expatriate tax should be able to assist with issues relating to UK tax and social security. For the other UK legal aspects, we recommend seeking legal advice from a suitably qualified solicitor. For advice relating to overseas matters, you should approach a suitable organisation in the overseas country concerned.