Remote work tax considerations: How and where to pay

A quarter of responses received indicated that saving on bills was also a consideration (25.3%). 18.7% said there was no reason for them to work at their employer’s premises and 2.5% replied that their job had to be done at their employer’s premises. Of the 3% of responses ticked for ‘Other’, reasons cited included to improve mental health, to access specific IT only available in the workplace and to aid concentration and focus. These ideas were also suggested as potentially enabling contribution to the UK economy by allowing short-term visitors a frictionless entry to the UK. Many respondents noted this as in keeping with the wider move to ‘Digital Nomad’ visas (see Chapter 2), and as fitting with a perceived government agenda to make the UK a frictionless place to come and spend time and money. Respondents felt increased guidance on various hybrid and distance working scenarios would be extremely helpful.

The main issues raised in relation to UK-based hybrid working relate to expenses and the need to address these issues potentially offers the opportunity to revise the whole approach adopted in the UK. The Call for evidence for this work was mainly conducted after the government’s announcement on 23 September 2022 that the OTS would close, made as part of The Growth Plan 2022. To meet the government’s directive to conclude outstanding work by the end of 2022, the OTS shortened the consultation period to eight weeks. In that context, the OTS is particularly grateful to all those who willingly gave time, ideas, challenge and support over the course of 39 meetings, many with large groups, and 50 written submissions. Everyone the OTS spoke to was supportive of the OTS’s work and the need to highlight the growing complexity in this area, and keen to collaborate and contribute to make this a true reflection of their concerns. Your teams are likely to have questions about going back into the office post-pandemic.

Addressing the people and tax implications of hybrid and remote work

The OTS repeatedly heard there was now a need to rethink the permanent and temporary workplace legislation. The 40% test was thought to be no longer appropriate to current working practices, and the 24 months test too short a period to incentivise workforce mobility, particularly for infrastructure projects. Respondents referred to the above OTS review on employee benefits and expenses in 2014 and considered the suggested changes be revisited. This would also address the non-executive director feedback above, where board members with considerable work to be carried out from home, would be able to deduct travel expenses. The OTS explored this when carrying out a review of employee benefits and expenses in 2013 and 2014, and the final report[footnote 17] noted that a quick simplification for employers would be to allow travel expenditure to be included in a PSA.

How Remote Work Taxes Are Paid

Many felt HMRC should introduce a day test to help define ‘permanence’ for corporate tax purposes. As is the case for employer payroll obligations, this would exclude cases where employees work remotely in the UK for shorter periods of time and help reduce administrative burdens. For example, as discussed above, HMRC could clarify it does not consider those who choose to spend less than, say, 60 working days a year in the UK acting for an overseas employer how are remote jobs taxed to create a permanent establishment. Several respondents recognised this could give rise to a loss of tax and suggested mitigating this risk by requiring employers be based in specific places (a ‘safe list’ of jurisdictions). Employees that choose to work remotely in a separate jurisdiction to their employer can, in some circumstances under the current rules, create a right for the separate jurisdiction to tax some of their employer’s profits.

Did you work remotely last year? A surprise tax might be waiting for you.

23.3% replied that they have or planned to work overseas for over a month and up to six months and 20% replied over two weeks and up to one month. 18.3% answered that they have or are planning to work overseas for over a year and 5% replied that they have or are planning to work overseas for over six month and up to a year. Some noted that transfer pricing is an inherently complex and subjective part of tax law and suggested collaboration with HMRC to provide certainty around cross-border remote working could be a helpful step toward providing certainty in other areas. The cycles or safety equipment are available generally to employees of the employer. The prevailing view expressed by businesses was that the tax system would be clearer if the same tax outcome were reached when reading across each scenario in Table 1 above.

How Remote Work Taxes Are Paid

According to the UK Office for National Statistics (ONS) 2023 reports, 44% of UK workers engage in remote work, comprising 16% as full-time remote workers and 28% as hybrid workers. About 58% of employers extend remote work options to all eligible staff, with 1 in 4 UK workers adopting a hybrid work week. Furthermore, 80% of company directors and leaders have permitted remote work since 2020. Additionally, a YouGov poll indicated that 57% of British workers desire the flexibility to work from home. Furthermore, a McKinsey survey in 2023 found that 87% of employees offered remote or hybrid work expressed willingness to accept it.

Request that your employer hire you via an EOR

They might stay home once or twice a week but go to the office for the remaining three days. A short UK stay is not enough for Tyler to be considered a UK resident for tax purposes—in fact, stays under 16 days automatically make him a non-resident and Tyler will not need to pay UK income tax on this income. When you file your tax return, you will generally report your worldwide income, which includes any income earned at home or abroad, to your country of residence. Kayla will have Australian tax obligations, so she’ll pay Australian income tax, Medicare, and Superannuation premiums, which will all be deducted from her paychecks. 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.

  • Tax treaties between countries play a significant role in preventing double taxation for individuals working remotely.
  • Inevitably many suggestions were for additional tax reliefs, which would result in additional costs to the exchequer.
  • Additionally, the current practice of requiring an employer to keep track of employer provided equipment for its return, often where the equipment has negligible value, penalises smaller employers who may not have a centralised procurement system.
  • Because where the work occurs is one of the primary determinants of where a remote worker pays income tax, temporary remote conditions are often confusing.
  • Catherine Stanton, past chair of the AICPA’s state and local tax committee, says she’s fielded an increasing number of questions about out-of-state remote situations from clients, both employees and employers.
  • For now, let’s stick to tax liabilities for remote workers who live outside the United States but work for companies based in the U.S.

Should costs of travelling between a home-based workplace and an office workplace be tax deductible? Some hybrid workers suggested that they need the encouragement of tax relief to make the trip into the office. The OTS’s work considered employers of all sizes, both UK and overseas based, and their employees. The OTS had hoped to investigate whether self-employed individuals were starting to work part-time in a different country from their main location but in the period available for carrying out the review, little evidence was found of this.

How a reciprocal agreement simplifies state taxes

However, just like the double tax agreements, a social security agreement may offer the same protection for social security contributions, either bilateral or multilateral agreements between the UK and the host country. In the event that you are required to make social security contributions abroad, probably, your employer will also have an obligation to pay employer’s social security in that country. If the employee is subject to tax in the host country but continues to be a UK tax resident, they will be subject to UK income tax on their worldwide income but should be able to claim credit for some or all of the tax they pay in the host country. They will, however, be required to complete the necessary tax declarations, which could be a complicated process. The UK has DTTs with the vast majority of countries, including all 27 EU member states and the majority of the world’s major economies.

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