Following the COVID-19 pandemic and the global shift towards remote work, the traditional boundaries of where and how work gets done have blurred significantly. This paradigm shift brings with it a myriad of implications, particularly in the realm of taxation. For both businesses and employees in the UK, understanding and navigating these tax implications is crucial.

In this blog post, we delve into the nuances of taxation and tax planning for remote workers and businesses with remote employees, shedding light on potential tax savings and compliance considerations in the era of remote work.

Tax implications for remote workers

For remote workers in the UK, the tax implications primarily revolve around where they are tax-resident and where the work is performed. Some key considerations are UK residence status, double taxation agreements and tax relief on expenses.

What is my tax residence status?

Remote workers need to determine their tax residence status, as it dictates which country’s tax laws apply to their income. This is largely determined by the number of days spent in the UK during a tax year (6 April – 5 April).

You’ll only be resident in the UK if both of the following apply:

  • you meet one or more of the automatic UK tests or the sufficient ties test
  • you do not meet any of the automatic overseas tests

You may be resident under the automatic UK tests if you spent 183 or more days in the UK in the tax year.

Otherwise, you’ll be non-resident in the UK for tax purposes.

You can use the government residence status checker if you are unsure.

What are double taxation agreements?

Double taxation treaties are agreements between 2 states which are designed to protect against the risk of double taxation where the same income is taxable in two states. The UK has the world’s largest network of treaties, covering around 120 countries worldwide. A full list of agreements can be found here.

These situations can be very complex, we recommend you seek professional advice to avoid any potential pitfalls. Get in touch at info@brookscity.com if you would like to enquire.

What tax relief can I claim on expenses?

Remote workers may be entitled to tax relief on certain expenses incurred while working from home. Check out what expenses you may be able to claim, in one of our other blogs – here. This includes things like work-based utilities, business phone calls and equipment purchases. It does not apply to expenses for both private and business use, like rent or broadband.

You can claim tax relief on these sorts of expenses if your job requires you to live far from your office or your employer does not have an office.

You can claim tax relief on either:

  • £6 a week – you will not need to keep evidence of your extra costs
  • the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts

It will be based on the rate you pay tax.

Tax implications for businesses with remote employees

For businesses with remote employees, there are several tax considerations to bear in mind. Employers are responsible for ensuring compliance with tax and employment laws in all jurisdictions where they have remote workers. Generally, this includes obligations such as payroll taxes, social security contributions, and withholding taxes. Some more specific points to consider are permanent establishment and transfer pricing.

Having the best payroll software can also help simplify any tax implications. Check out our list of Best Payroll Software for Small Business in the UK 2023. 

Permanent establishment:

For businesses with remote workers operating from different locations, the concept of permanent establishment (PE) is critical. Under UK law, a PE is either:

  • a fixed place of business (FPOB) in the UK through which the business of the enterprise is wholly or partly carried on

    or
  • an agent acting on behalf of the enterprise that has, and habitually exercises in the UK, authority to do business on behalf of the enterprise

If a PE is in place, it means that profits are potentially taxable in two countries. Only the taxable profits from the activities of the local PE should be chargeable to local tax. Again, these situations can be very complex, contact us so we can offer you the best advice for your business.

Transfer pricing:

Transfer pricing is the amount charged between associated enterprises for the purchase of goods, services or intangible property. It’s important to consider for tax purposes as the pricing agreed will have an impact on the taxable profits. In agreement with other countries, it’s based on an internationally recognised ‘arm’s length principal’. It also applies to any UK-connected entities.

There is an exemption that will apply for most small and medium-sized enterprises. A ‘small’ enterprise is under 50 staff and has an annual turnover of less than 10 million. A ‘medium’ enterprise is under 250 staff and has an annual turnover of less than 43 million.

Ensuring compliance and maximising tax savings

To maximise tax savings and ensure compliance in the era of remote work, both businesses and remote workers can take proactive steps:

Seek professional advice: Given the complexity of tax laws and regulations, seeking advice from BrooksCity is a great place to start. Let us take the stress out of the tax implications for remote working. Check out What Does an Accountant Do For a Small Business?

Document compliance efforts: Businesses should maintain thorough documentation of their compliance efforts, including tax filings, employee contracts, and records of remote work arrangements. Doing so will mean you are well prepared for any eventuality.

Review policies regularly: Tax laws and regulations are subject to change, particularly in response to evolving trends such as remote work. Regularly reviewing and updating policies and procedures can help businesses stay compliant and tax-efficient.

Optimise employment structures: Hiring remote workers as independent contractors rather than full-time employees may result in lower payroll tax obligations for the business.

Optimise travel and subsistence claims: If remote work involves occasional travel or subsistence expenses, ensure these costs are accurately recorded and claimed for tax relief where possible. Keep detailed records of travel expenses, including receipts and documentation, to support tax claims.

As remote work continues to redefine the modern workplace, understanding the tax implications for both businesses and employees is paramount. Staying informed on tax laws, seeking professional advice, and implementing proactive tax planning strategies, can help navigate the complexities of remote work while maximising tax savings and ensuring compliance. Embracing the opportunities presented by remote work while remaining vigilant about tax considerations will be key to success in the new era of work.

For more information on personal or business tax returns and tax planning for remote workers, you can reach out to us at info@brooks-city.com or you can fill out an enquiry form here and one of our expert team will be in touch.