In the modern workplace, the concept of remote work has evolved from a rare perk to a standard practice, especially in the wake of global events like the COVID-19 pandemic. For small and medium-sized enterprises (SMEs), this shift presents both opportunities and challenges, particularly when it comes to incentivising employees who work from home or abroad.
In Employee Incentivisation for SMEs – Part 1, Makayla Combes delves into the intricacies of homeworking expenses, working overseas, double taxation agreements, short-term overseas assignments, and permanent overseas workers.
For employees working from home, certain expenses can be reimbursed tax-free by employers. The UK's HM Revenue & Customs (HMRC) provides guidance on what constitutes allowable homeworking expenses. For instance, additional costs such as heating, lighting, and internet usage may be covered. Currently, HMRC suggests a rate of £6 per week for these expenses without the need for receipts. However, it's crucial that there is an agreement between the employer and employee, and that the employee works from home regularly under this arrangement.
Employers should also have clear IT policies in place to ensure that any equipment provided, such as laptops, is used primarily for work purposes to qualify as an exempt benefit.
Working Overseas: Tax Residency and Obligations
When employees work overseas, SMEs must consider tax residency status and obligations. The statutory residence test helps determine if an individual remains a UK resident while working abroad. If an employee works overseas for less than 24 months, it's typically considered short-term, and they may still be subject to UK taxes and National Insurance contributions. However, if the assignment extends beyond 24 months, the situation changes, potentially affecting their tax residency status.
Double Taxation Agreements: Avoiding Dual Tax Liabilities
Double taxation agreements (DTAs) are treaties between two countries that aim to prevent individuals from being taxed twice on the same income. Most countries have DTAs with the UK, which outline where taxes should be paid and how much relief is available. Key articles within these agreements, such as Article 4 on residency and Article 15 on employment income, provide clarity on where an employee's income is taxable.
SMEs should familiarise themselves with the relevant DTA provisions to ensure compliance and avoid unexpected tax liabilities. It's also important to consider the potential creation of a permanent establishment in the foreign country, which could have tax implications for the company itself.
Short-Term Overseas Working:
For short-term overseas assignments, typically lasting less than 24 months, employees usually remain UK tax residents. During this period, they may continue to pay UK National Insurance contributions, provided specific forms, such as the A1 form for EEA countries, are completed to certify their tax status abroad.
Permanent Overseas Workers
When an employee moves overseas permanently, their tax residency status is likely to change. Factors such as selling a UK residence and relocating the family can lead to non-residency in the UK. In such cases, split-year treatment may apply, and the individual may become subject to the tax laws of their new country of residence.
For SMEs, the ability to effectively manage remote and overseas workers is becoming increasingly vital. Understanding the nuances of homeworking expenses, navigating double taxation agreements, and staying informed about the tax implications of short-term and permanent overseas work are all critical components of a successful remote work strategy.
By staying abreast of regulatory requirements and providing clear guidance to employees, SMEs can create an attractive and compliant environment for remote workers, ensuring that both the business and its employees thrive in this new era of work.
For the full session, please click here. Makayla Combes covers the following topics during this 2-part series:
- Employee benefits
- Company cars
- Flexible working
- EMI shares and Growth Shares
- Employee ownership
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.