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Tax requirements if you relocate abroad while working for a UK employer

The potential tax implications on the individual as well as the UK based employer and should help to establish whether working abroad is a feasible option.

Written on 11 January 2022

Since the beginning of the Covid-19 pandemic, peoples’ approach to both working hours and set up has been changing and developing over time with more people looking to work from home permanently. This has included living abroad but continuing to work for the same UK based company. In many cases, such a scenario has been forced as employees who had travelled to a different country were unable to travel back to the UK due to covid travel restrictions being enforced. In some countries, these restrictions have remained in place for over 18 months.

As a result, businesses all over the UK (and the rest of the world) are implementing new approaches and schemes to encourage both the practicality and productivity of its employees, regardless of their location.

For some companies this may have simply involved a work-from-home policy, but others have been seen to be introducing new policies which will allow their employees to work for their UK based company from overseas.

Despite this seeming to many people and employers a win-win scenario, it is important to consider the consequences of working from abroad and how exactly it will affect both the individual and organisation from a tax perspective.

This article looks at the potential tax implications on the individual as well as the UK organisations involved which should help to establish whether working abroad is a feasible option.

Personal tax implications of working abroad for a UK business

Ultimately, your exact tax obligations will come down to the details of your situation as an individual (I.e. where you want to work from outside of the UK and how long for in days within the tax year).

Remaining as a UK tax resident and working short term overseas (usually meaning less than 183 days) will mean that you will continue to be liable to pay UK income tax.

This is generally due to the UK taxing its tax residents on worldwide earnings, regardless of where abouts the work was undertaken.

Not remaining as a UK tax resident can mean triggering residence overseas and becoming a resident of both countries, which will mean considering whether a double tax agreement between the UK and the country in question exists post-Brexit, allowing you to find out if you run the risk of double taxation.

If you do become subject to taxation in the host country, but still remain a UK tax resident, despite being liable for taxation on your worldwide income you may be able to obtain credit on some or all of what you pay in tax within the host country.

This credit would only be claimable after completing the necessary tax declarations. This process is very rarely straight-forward, which is why it is always advised you seek advice.

This is not only to ensure all your taxes are in order for both countries, but also to avoid what could have potential to be extremely costly errors.

Each country has its own varying tax rules, meaning that depending on the host country you are working from, will decide what tax liabilities you have.

Risks of triggering ‘permanent establishment’ for the employer

When working for a UK company abroad, you run the risk of triggering something called permanent establishment. But what exactly is it?

To put it simply, permanent establishment may allow the host country the right to tax any and all corporate revenues which are created within their own borders, creating an administrative tax nightmare for the UK based business.

This will be based on the business presence of the company being sufficient and continual.

There are no specific outlines of what exactly defines how this established status can be triggered and tested, which can make it extremely difficult for multinationals.

This is due to the ways it can be triggered being different throughout all countries without any clear guidance or criteria to follow.

Aside from diligent research and of course seeking professional advice from an expert, below are three ‘technical’ reasons listed that are used as overall guidance for companies to allow them to try to avoid triggering permanent establishment:

  • A ‘fixed place of business’ test
  • Employing sales staff in a foreign country/ sufficient business activity
  • ‘Revenue creation’ test (or sales staff signing contracts on behalf of the UK company)

From an employer’s perspective, the risk of a permanent establishment in a foreign country may be enough of a deterrent to permitting employees to work abroad. The potential increase in administrative, legal and tax obligations are often not going to be justifiable.

Request assistance if you need help understanding your tax obligations

If you are working abroad but for a UK based organisation, you simply cannot just assume that your tax situation remains the same. With so many factors coming into play, including your tax residence status in each country and therefore your tax responsibilities, as well as tax and legal requirements of your employer - you must seek assistance to ensure you do not expose yourself to potential penalties and legal complications.

We can introduce you to a UK tax specialist who will be able to guide you and potentially your employer to discuss what is feasible with regards to working abroad for a UK based organisation. Once you request an introduction through our network, our hand selected partner will conduct a short initial consultation for free which will answer basic questions.

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