Non-resident employees – tax implications to consider

Since Covid has shown us we can work from anywhere globally, recruitment possibilities have opened up. Then add in Brexit, which has changed our relationship with other countries. Both of these have tax implications for having any non-resident employees on your team. We’ve put together some things you should consider if you have any non-resident employees.

For tax purposes

When hiring an employee who is not resident in the UK but who has a UK National Insurance number:

• We would add to the UK Payroll as usual. The employee could then seek a tax code from HMRC to make the payment gross, therefore no deduction of tax and National Insurance. 
• They would declare their income in the country where they are a resident and tax assessed according to the local rates.

If they do not have a UK National Insurance number:

• We would add to the UK payroll and be able to straight away apply a tax code to allow the payment to be made gross. However, the employee would need to seek confirmation from HMRC regarding the deduction of UK National Insurance.
• They again should declare the income in the country in which they are a resident and tax assessed in accordance with the local rates. 

In either circumstance, the employee would need to seek advice from a local tax specialist.

Additional overseas compliance obligations for employers

When hiring an employee who is non-resident, there are additional overseas compliance obligations for the employer. For example, these could include:

• The local social security contributions as you may be required to collect them
• Local Bank Holidays
• Minimum wage requirements
• Statutory provisions (maternity and sick pay etc.) according to the local laws

If one of your employees is considering a move abroad, you also need to be aware that you will also have the same overseas compliance to consider.

If the employee is also a director

Where the employee moving abroad is also a director, there may also be an impact on the company’s tax residency. The Director living abroad may create a permanent establishment overseas for tax purposes, meaning the company could create a tax liability in the director’s country of residence. If none of the company’s directors are UK tax residents, then the company could lose its UK tax residency unless measures are taken to avoid this. This is a complex area, and if you would like further advice or guidance, please speak to your Lead Adviser or our Head of Business Tax, Natalie.

Using an Employer Of Record (EOR)

Each country will have its own requirements, and we would recommend that you seek out advice before making any decisions. We have several clients already hiring internationally, and they engage the services of an Employer Of Record (EOR) who acts as an intermediary and will take care of all the additional compliance requirements surrounding the hire of international employees.

This would simplify the process for you. You would make a gross payment to the EOR who would engage with the individual for you and make the local tax, social security, and any other necessary deductions. This payment is fully deductible as an employee expense.

If you’re a Wow client and you have any employees already moving abroad or considering hiring internationally, please contact us so we can review the situation and advise on the next steps.

We try really hard to keep our blogs up to date, but sometimes the information and advice given are only correct at the time of writing. If you would like to discuss anything you read in our blogs please contact us.