Business calls for simplification of UK tax rules for cross-border workers

Businesses need more clarity and simpler processes for the taxation of cross-border workers, the Office of Tax Simplification, an independent adviser to the UK government, has warned.

The OTS, which consulted more than 60 organisations, said most businesses were “strongly of the view” that being able to offer employees the ability to work from a different country was important for attracting and retaining staff but cited “concern” about the tax implications.

The cross-border working trend has been on the rise in recent years, with the study citing data from Airbnb that showed the accommodation site reported 20 per cent of all bookings in the first quarter this year were for a month or longer — double the number of the same period three years previously.

Yet the OTS found that take-up among the businesses surveyed was limited. Respondents typically reported between 2 and 5 per cent of staff worked from another country on a short-term basis, rising to up to 10 per cent for several large employers.

Allowing staff to work from overseas risks companies having to pay income tax and social security on behalf of employees in other jurisdictions, as well as the risk of triggering a corporation tax presence.

“The tax rules that govern cross border working have not kept up with the pace of change, and can be an incredibly challenging legal area for businesses to manage,” said Philip Swinburn, employment tax specialist at law firm Macfarlanes.

The OTS found that to prevent an overseas tax presence being triggered, employers typically permitted short-term overseas stays of not longer than 10 to 30 days per year. The report said the administration of registering for taxes in other countries was viewed as a “significant burden”, especially for partnerships.

“Multinationals are equipped to deal with these problems as they can use overseas subsidiaries to deal with the admin burden, but small and medium sized companies are facing the same requests and are having to entertain them to remain attractive to employees,” said Tim Stovold, head of tax at accounting firm Moore Kingston Smith.

The OTS report said international co-ordination — likely through the OECD — was needed to make cross-border working easier to facilitate and minimise the risk of double taxation.

However, it said the UK could take a lead in offering a streamlined approach. For hybrid workers coming to the UK, “there could be a simplification blanket policy where anything under a set period, possibly 60 days or less, spent working in the UK would not trigger tax, social security, or a permanent establishment”, the report said.

“This would reduce the administrative burden for employers and employees and was seen as beneficial if the government wished as a policy objective to encourage people to come to the UK for a period of time,” it added.

The report also suggested a number of ways that HM Revenue & Customs could make it simpler to deal with the payroll compliance when employees are working for short periods in the UK, along with proposals to reform the tax regime around working from home.

This is the last report from the OTS, which was set up in 2010, as it will be wound up at the end of the tax year after shortlived chancellor Kwasi Kwarteng announced its closure in his “mini” Budget in September.

The government said: “Tax simplification is a priority for this government, and we thank the Office of Tax Simplification for this report.”

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