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The tax consequences of working for an overseas employer - news article image

The tax consequences of working for an overseas employer

6 Sep 2021

3 minute read

I recently covered the tax consequences of remote working for employees working for a UK employer from oversees. There are also potential consequences if you are considering remote working by working for your overseas employer from within the UK. In this article we have focussed on the income tax and social security aspects for you personally. 

Income Tax

For income tax purposes, the important point is that if you physically carry out duties in the UK then usually the UK will seek to tax the income you receive for those duties.

You may also continue to be taxed in the overseas country if you continue to be tax resident in that country, this will depend on each individual country rules and should therefore be checked on a case-by-case basis. 

To better understand how duties performed in the UK could be taxed, you need to firstly work out what your tax residence position will be.

Generally, your risk of becoming tax resident in the UK becomes significantly higher once you spend more than six months in the UK. However, you could still become tax resident in the UK despite you spending less time than that. Even if you don't become resident in the UK, you may still be taxed on any employment income you earn while you are in the UK. 

Depending on your residence status your next step would be to determine whether a double tax agreement between the overseas country and the UK protects you from being taxable in the UK, despite the fact you are physically working here.

In most cases, provided that you spend no more than 183 days in the UK and you work for a non-UK resident employer who bears the cost of your employment, you would usually continue to be taxed only in the overseas country and not in the UK. It still may be the case that there are some withholding or other compliance obligations in the UK, this should be checked on a case-by-case basis.

If you are unable to get protection under a double tax agreement, you should expect to be taxable in the UK on your income for duties performed here. In this situation, you are likely to need to file a UK tax return and there may be withholding obligations for your employer.

If you are also taxable in the overseas country on this income, then double taxation will arise.

We at Shaw Gibbs can assist with determining tax residence status in the UK and therefore the likely income tax responsibilities you will have here. Our international association, DFK, can also assist with income tax responsibilities in overseas countries.

Social Security

Social security needs to be considered separately from income tax. Even if you are not taxed in the UK, you may still be liable to pay social security (National Insurance) contributions here. It is also possible to continue to be liable to an overseas country’s social security even where you are taxed in the UK and not overseas.

Like income tax, the starting point is to assume that you could potentially be liable to social security in the country where you physically carry out your work. 

However, there may be a social security agreement that protects you from exposure to social security in the UK. It is therefore worth considering whether there is an agreement between the UK and the overseas country where your employer is based and whether that agreement protects you against social security in the UK.

Where you are not protected by the terms of a social security agreement – or if one does not exist – then you need to consider the domestic social security laws of both countries to determine where you are liable.

The tax consequences of working for an overseas employer - news article image


Emily Hillier

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