Tax issues if you work from abroad

Covid-19 has enabled many people to work from home and, for some companies, wholesale remote working may be a possibility for the long term. Others may be contemplating moving temporarily to sunnier climes to work this winter.

But tax advisers have been warning that they may face fines or investigations from foreign tax authorities if they stay too long, become resident in a foreign country for tax purposes and fail to declare their UK incomes.  So what do they need to know?

The first thing is to check if there is a double tax treaty (DTT) between the UK and the host country. If that is the case, the employee may be exempt from income tax there if certain conditions are satisfied, including that the employee is not a tax resident in the host country.

Residence status for tax purposes is determined by a person’s circumstances and if the number of days they spend in a country over a 12-month, including any short visits to visit family, exceeds 183 days.

The good news is that the UK has a DTT with most countries, including all EU countries and most other major world economies. That means that a short stay there will not make them liable to pay income tax in the host country.

However, it is important to check the particular DTT that operates and to check what the local tax position is.

If the employee does become subject to tax in the host country but remains UK tax resident, they will remain subject to UK income tax, but they should be able to obtain credit for some or all the tax they pay in the host country.  However, they will have to complete any relevant paperwork.

Dave Chaplin of Contractor Calculator says: “A person’s tax residence is not a matter of choice, but a matter of law, and it would be prudent for those thinking of transitioning abroad to research any relevant double taxation treaty applicable. This is can of worms stuff and formal legal advice should be taken.”

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