Hybrid and distance working report: exploring the tax implications of changing working practices

Most small businesses usually outsource this to their accountant or to a payroll expert or agency. Hiring a dedicated professional can be expensive, which explains the quick growth in popularity of services such as Gusto (we use it, too!), which simplify and automate many of the processes around payroll. Some companies adopt tools like PayPal Payouts, which simplify the process of paying multiple people while also keeping costs low. This can be a joy if you get a kick from doing paperwork, but for most people this approach quickly spirals into a logistical and compliance nightmare as their remote workforce grows.

However, hybrid working involves two or more workplaces, one of which might be a home as well. Should costs of travelling between a home-based workplace and an office workplace be tax deductible? Some hybrid workers how companies benefit when employees work remotely suggested that they need the encouragement of tax relief to make the trip into the office. Working across borders can have implications for an employee’s residence, Income Tax, social security and payroll position.

Working From Home: Tax Benefits & Pitfalls

New Zealand allow an employer allowance for commuting tax free where there is no public transport available, otherwise only the excess over the employee’s normal journey is allowable. In Denmark, an employee may make a claim for a deduction for commuting where the round trip exceeds 24km, based on a scale rate per mile. Some respondents suggested that the government should consider offering a general employment allowance, which would allow a set amount to cover home working costs and travel from home to business locations.

You therefore need to consider whether there is a bilateral or multilateral social security agreement between the UK and the country you are considering working in. Then you need to consider whether that agreement protects you against social security in that country. You should then consider whether your UK tax residence position will change because of physically being outside the UK. In most cases, if you plan to be outside of the UK for less than a complete UK tax year, then you will usually remain tax resident in the UK. As a rule of thumb, your risk of becoming tax resident in another country becomes significantly higher once you spend more than six months (183 days) in that country. The fact you might work for a UK employer, under a UK contract and receive your pay into a UK bank account doesn’t generally change that – though you will need to check the rules of the country concerned.

Hybrid and distance working report: exploring the tax implications of changing working practices

In most applicable countries, employees have to apply for remote work allowances individually when they file their taxes. As remote and hybrid working across borders becomes a material feature of labour markets, businesses keen on reaching out to a broader pool of talent will have to consider the tax implications that come with managing a geographically dispersed workforce. They will need to consider that the overarching tax system may not yet have adapted to these new ways of working.

This could be offered to all employees and easily dealt with by the PAYE system, using the tax code where the allowance was not paid by employers. Costs covered by the allowance would not be tax deductible other than through the allowance. Remote work allowance – also known as working from home or home office allowance – comes primarily in the form of a tax deduction for remote employees. The availability and regulations of remote work tax deductions, which are tied to an employee’s income tax and tax residency, vary a lot from country to country. The standard global threshold of tax credit for an individual to live tax-free in a foreign country during one financial year is 183 days.

For earlier tax years

Prior to the pandemic, most employees worked at their employer’s location – an office, shop, manufacturing plant and so on. Similar choices were made by self-employed individuals, depending on the nature of their work, with a greater likelihood of home working. The legal requirements to work from home where possible during the pandemic led to around 40% of the UK workforce working at home at least part of the week.[footnote 1] This has been facilitated by the availability of technology to support home working.

• You may have been working from home toward the end of last school year and part of this school year.
• This would help reduce compliance costs and ensure a level playing field where a UK employer is considering allowing an employee to work overseas, as well as where an overseas employer is considering allowing an employee to work in the UK.
• Some companies choose to use platforms like Upwork to pay their employees, even if they don’t hire through them.
• However, the administrative burdens created by cross border working can be more burdensome for partnerships than businesses.
• 70.4% of total respondents to this question said that they would be less likely to take a job if they could not work some of the time remotely and 18.3% said they would be less likely to take a job if they could not work all of their time remotely.
• It would depend on the rules in each host country as to whether they would apply social security in that country as well.

This Chapter summarises the emerging trends in cross-border working patterns, a summary of the issues arising, and how employers are managing them. Tax issues and areas where respondents called for simplification or improved guidance are explored more fully in Chapter 3. The legislation[footnote 29] allows exemption from Income Tax and National Insurance for workplace nurseries where certain qualifying conditions are satisfied.

How to claim

Of the total respondents to this question, 41.4% replied ‘no’, 31.6% replied ‘no, it’s not necessary as I do not plan to work overseas’ and 27% replied ‘yes’ that their employer had helped them understand the consequences. 29.3% of total respondents to this question responded ‘yes and I understand the implications’, whilst 27% responded ‘yes, but I don’t fully understand the implications yet’. 15.9% replied that they ‘haven’t thought about it’, whilst 27.8% said it was ‘not applicable’ as they did not intend to work abroad.

• For outbound employees, the UK government has no direct control over other countries’ compliance rules.
• As is the case for employer payroll obligations, this would exclude cases where employees work remotely in the UK for shorter periods of time and help reduce administrative burdens.
• If you’re considering or already working with a remote team, this article will help you understand the fundamentals of payroll and taxes when dealing with a remote workforce.
• Seventy-nine percent of respondents to a Deloitte survey1 reported that at least 75% of their workforce has been able to work remotely during the COVID-19 pandemic.
• The jobs
  still must meet all other requirements, but during 2020 and 2021, a newly hired
  remote worker or an incumbent employee who has started to work from home due to
  the COVID-19 pandemic may be counted as a qualified job for the program.