Hybrid working. Work from home. Work from anywhere. As the world attempts to return to some kind of post-Covid normality, business after business has announced more flexible working arrangements for staff who have grown used to working from home and all the benefits that it can bring.
For many, this surge in remote working and the resulting employment policy changes have made the dream of living abroad a more tangible possibility. If I can work from home, why can’t that home be near a sun-soaked European beach rather than a dreary commuter town?
Unfortunately, hopping overseas to work is not quite that simple. One particular consideration is tax. Those going to base themselves abroad while working for a UK company should ensure they understand their tax liabilities before making the leap. Here are some key points to consider.
People working abroad for just a short period of a few months will remain UK tax residents, so any overseas earnings will need to be reported to HMRC. If you are required to pay tax on these earnings in the country you are working in then you will receive credit for these against any UK liability. If you continue to be paid from the UK on your UK employer’s payroll then PAYE/NI will continue to be applied if you are working abroad for only a short period of time.
However, if you leave the UK to work abroad for at least one complete tax year you will need to submit form P85 to HMRC telling them you are leaving the UK. If you become a tax resident in another country you will be subject to their tax rules and regulations and will need to register with the tax authorities and in most cases obtain a tax residency certificate. In most cases you will be liable to tax there on your worldwide income and gains.
Residency is a complex area with domestic legislation being also overlaid by Double Taxation Agreements between countries.
Offshore or UK Payroll?
If you are being paid from the UK payroll your employer will place you on a no tax code so that no UK PAYE is applied but you will then need to report and pay tax on these earnings to the tax authorities in your new country. It is often better to be paid from an offshore payroll as you will then be paid in the local currency and will not be subject to foreign exchange movements when converting sterling earnings.
Work Duties When Visiting the UK
Those who are tax resident overseas must take care over performing work duties when visiting the UK. HMRC has a list of those duties they consider ‘incidental’ and if people carry out duties beyond that – which could include just responding to an email or a phone call or attending a meeting – then UK tax may apply.
Wider Reporting Obligations
You may still have other reporting obligations in the UK even if you are non-UK tax resident. For example, if someone leaves the UK to work abroad but retains their UK home and rents this out whilst they are away, this rental income would need to be reported to HMRC and will be subject to UK tax if it makes a profit. It will also need to be reported to the overseas tax authorities but credit will be given for any UK tax suffered.
You will also need to consider your UK national insurance position and any pension arrangements. To complicate matters further, while the UK tax year runs from 6 April to 5 April, most other countries have a tax year based on a calendar year.
Overseas Bank Account
Those going abroad for a long period or permanently will need a local bank account, which will serve as evidence of their offshore residency position. Retaining a UK bank account and savings might be a sensible choice in case they return to the UK in future, and also so they can access funds when visiting the UK without having to convert foreign earnings into sterling.
Get in touch with us if you want to gain more insights on working your way.