In its formal response to the OTS call for evidence on hybrid and distance working arrangements (including employees working across borders), the CIOT addresses key issues in the following three areas:
1. Tax and social security implications where employees temporarily work in a country other than where they normally work.
The UK could take the lead on streamlining the practicalities around tax and social security for cross-border workers, particularly for those who choose to work in the UK on a temporary basis. HMRC guidance should, in the meantime, be improved to help employees understand their status around UK residence and consequent liability to taxes and NICs in the UK. The CIOT suggests HMRC create an online hub to allow employees to check the implications for their particular circumstances.
The UK tax rules around short-term business visitors could be improved, including where time spent in the UK in a tax year exceeds the 60-day limit. The CIOT suggests HMRC create an ‘inpatriate’ tax team, providing a similar service to the dedicated expatriate tax team, but for tax issues arising where non-UK workers come to work in the UK.
Alongside considering the general UK tax rules for employee travel expenses, the CIOT highlights difficulties with the counting days for the purposes of the statutory residence test. For example, an employee might visit the UK to attend a concert, but also conduct work using a mobile device while in the UK. ‘More prominent guidance on what work constitutes a “day of work” in the UK or “UK duties”, and the consequences of this, would be helpful’, says the CIOT.
2. Tax treatment of expenses and benefits in kind where UK resident employees work from home or partly from home and partly from their employer’s business premises.
Homeworking and hybrid working arrangements post-pandemic continue to present challenges for employers, not only to manage the workforce but also to ensure they are compliant with employment law and tax rules. The CIOT reports members’ experience that employers are ‘waiting for things to settle down before finalising policy and updating things like employment contracts and employee handbooks’.
The CIOT highlights various existing challenges for employers in maintaining compliance in the new era of hybrid working, including the tax treatment of employees’ travel costs and the balance to be struck where a home-based employee travels to their employer’s office (which previously would have been their permanent workplace). A review and clarification of exemptions and deductions for employees’ travel expenses would help ensure they are ‘fit for purpose’, suggests the CIOT and, ‘as a minimum, the opportunity should be taken to improve existing guidance on allowable/non-allowable business travel’.
A specific deduction for extra costs of working from home would be helpful, particularly given the existing tax rules around homeworking expenses which can lead to different treatment depending on whether the employee is contractually obliged to work from home or has chosen to do so.
The provision of equipment can be taxable where the employee incurs the expense and is reimbursed, as highlighted during the pandemic. The CIOT suggests that the tax treatment should not turn on whether or not the employer pays directly or indirectly incurs the cost of the item.
3. For overseas businesses with UK-based employees, whether the employees’ presence in the UK causes a UK permanent establishment to be created.
New guidance from HMRC and the OECD would help advisers dealing with remote work situations where the employee is not on a traditional secondment arrangement to a third country (where, for example, although the employee is working from the third country, that work is for the benefit of the business in the home country). Before the pandemic, existing guidance ‘did not envision the current reality of employees choosing to work remotely and it would be helpful if the [OECD] commentary was expanded to also cover the situation where working at home was not “required” but the employee’s choice/was not continuous’.
Whether or not remote working situations risk the establishment of a PE is particularly challenging, given the rules vary from country to country. Increased clarity on the PE and income tax requirements for specific work examples would be welcomed, suggests the CIOT but, ultimately, the employer will need to undertake the necessary in-depth, time-consuming analysis to determine the degree of risk.
The CIOT suggests that the UK government should work with the OECD to ‘seek to achieve a revision to the [OECD] commentary that makes it clear that if, say, conditions (a), (b) and (c) apply then a PE will not arise. A collective simplification measure would be particularly helpful where the tax at stake is not material and would relieve companies and tax authorities of a significant compliance burden, reduce uncertainty, and manage costs.’
Across all three areas, the CIOT suggests that improved digital offerings from HMRC would help address many of the existing obstacles.
In its formal response to the OTS call for evidence on hybrid and distance working arrangements (including employees working across borders), the CIOT addresses key issues in the following three areas:
1. Tax and social security implications where employees temporarily work in a country other than where they normally work.
The UK could take the lead on streamlining the practicalities around tax and social security for cross-border workers, particularly for those who choose to work in the UK on a temporary basis. HMRC guidance should, in the meantime, be improved to help employees understand their status around UK residence and consequent liability to taxes and NICs in the UK. The CIOT suggests HMRC create an online hub to allow employees to check the implications for their particular circumstances.
The UK tax rules around short-term business visitors could be improved, including where time spent in the UK in a tax year exceeds the 60-day limit. The CIOT suggests HMRC create an ‘inpatriate’ tax team, providing a similar service to the dedicated expatriate tax team, but for tax issues arising where non-UK workers come to work in the UK.
Alongside considering the general UK tax rules for employee travel expenses, the CIOT highlights difficulties with the counting days for the purposes of the statutory residence test. For example, an employee might visit the UK to attend a concert, but also conduct work using a mobile device while in the UK. ‘More prominent guidance on what work constitutes a “day of work” in the UK or “UK duties”, and the consequences of this, would be helpful’, says the CIOT.
2. Tax treatment of expenses and benefits in kind where UK resident employees work from home or partly from home and partly from their employer’s business premises.
Homeworking and hybrid working arrangements post-pandemic continue to present challenges for employers, not only to manage the workforce but also to ensure they are compliant with employment law and tax rules. The CIOT reports members’ experience that employers are ‘waiting for things to settle down before finalising policy and updating things like employment contracts and employee handbooks’.
The CIOT highlights various existing challenges for employers in maintaining compliance in the new era of hybrid working, including the tax treatment of employees’ travel costs and the balance to be struck where a home-based employee travels to their employer’s office (which previously would have been their permanent workplace). A review and clarification of exemptions and deductions for employees’ travel expenses would help ensure they are ‘fit for purpose’, suggests the CIOT and, ‘as a minimum, the opportunity should be taken to improve existing guidance on allowable/non-allowable business travel’.
A specific deduction for extra costs of working from home would be helpful, particularly given the existing tax rules around homeworking expenses which can lead to different treatment depending on whether the employee is contractually obliged to work from home or has chosen to do so.
The provision of equipment can be taxable where the employee incurs the expense and is reimbursed, as highlighted during the pandemic. The CIOT suggests that the tax treatment should not turn on whether or not the employer pays directly or indirectly incurs the cost of the item.
3. For overseas businesses with UK-based employees, whether the employees’ presence in the UK causes a UK permanent establishment to be created.
New guidance from HMRC and the OECD would help advisers dealing with remote work situations where the employee is not on a traditional secondment arrangement to a third country (where, for example, although the employee is working from the third country, that work is for the benefit of the business in the home country). Before the pandemic, existing guidance ‘did not envision the current reality of employees choosing to work remotely and it would be helpful if the [OECD] commentary was expanded to also cover the situation where working at home was not “required” but the employee’s choice/was not continuous’.
Whether or not remote working situations risk the establishment of a PE is particularly challenging, given the rules vary from country to country. Increased clarity on the PE and income tax requirements for specific work examples would be welcomed, suggests the CIOT but, ultimately, the employer will need to undertake the necessary in-depth, time-consuming analysis to determine the degree of risk.
The CIOT suggests that the UK government should work with the OECD to ‘seek to achieve a revision to the [OECD] commentary that makes it clear that if, say, conditions (a), (b) and (c) apply then a PE will not arise. A collective simplification measure would be particularly helpful where the tax at stake is not material and would relieve companies and tax authorities of a significant compliance burden, reduce uncertainty, and manage costs.’
Across all three areas, the CIOT suggests that improved digital offerings from HMRC would help address many of the existing obstacles.
