Office of Tax Simplification launches hybrid and remote working review

The COVID-19 pandemic resulted in many employees working remotely (i.e. away from their employer’s premises), both internationally (i.e. between the UK and another country) and within the UK itself. In many cases this has led to a permanent move away from traditional office-based roles or formal overseas assignments to remote, or ‘hybrid’ home and site based, working arrangements. The Office of Tax Simplification (OTS) has announced a new review which will look at the tax and social security implications of both domestic and international hybrid and remote working arrangements. Where possible, it will make recommendations to ease compliance for employers and employees and better reflect current and evolving working patterns. This is relevant to employers who currently operate remote or hybrid working arrangements, or who might implement these in the future. This article discusses the proposed scope of the review, what this might mean for employers, and what actions employers should consider taking now.

Why is this important?

Hybrid and remote working can create tax and social security issues, especially – but not only – when there are international aspects and multiple tax jurisdictions involved.

For example, some of the personal tax issues that should be considered if an individual employed by a UK entity works overseas are:

• Where the individual is tax resident and how any relief for double taxation should be claimed;
• How and where the payroll should be operated, and whether any relaxations are available if withholding obligations arise in both countries;
• Where the employer and the employee should pay social security; and
• The treatment of international travel and subsistence expenses.

For hybrid or remote working within the UK, issues for employers include:

• Whether tax and social security liabilities arise in relation to reimbursed home working expenses, employer provided equipment, and what policies and procedures are needed to manage these;
  
• The potential impact on an employee’s permanent workplace and, therefore, when the employer can reimburse travel expenses tax free (an issue the OTS has previously considered); and
• Implications for tax advantaged benefits (e.g. cycle to work schemes and the requirement to use cycling equipment mainly for commuting and business journeys).

This review is therefore an opportunity for employers to highlight tax and social security issues they experience with hybrid and remote working and, potentially, influence policy to make the UK system simpler for both employers and employees to administer and more competitive.

What will the review cover?

In summary, the OTS will examine the following issues in relation to hybrid and remote working both internationally and, where relevant, within the UK:

• Working across international borders (including in multiple countries);
• The allocation of primary taxing rights and the need for double tax relief;
• Tax and social security where more than two countries are involved;
• The tax treatment of accommodation, travel, and other employee expenses;
• Whether permanent workplace rules are clear in light of new working practices;
• The short-term business visitor rules, overseas workday relief rules and PAYE withholding (e.g., modified payroll); and
• The treatment of pension contributions and employee share schemes.

The OTS’s review will also be mindful of associated immigration and employment law issues.

What should employers do now?

This review is the latest in a series of employment tax projects from the OTS, some of which resulted in substantial changes to the tax code.

Employers should therefore take this opportunity to consider what aspects of hybrid and remote working present compliance and other challenges within their organisations, and whether they are appropriate to raise as examples with the OTS as part of its review. Examples might include:

• Payroll withholding obligations in two or more countries;
• Lack of clarity as to an employee’s permanent workplace; and
• The risk of an individual’s presence in a particular country creating a permanent establishment or other taxable presence for the employer.

The call for evidence itself has yet to be published. However, KPMG in the UK expect to respond to this in due course and will provide a further update once the call for evidence is available.

In the meantime, employers should consider reviewing their existing hybrid and remote working arrangements to identify any tax and social security challenges they might wish to highlight to the OTS. If there are any points you wish KPMG to consider including in any submissions we make to the OTS, please speak to the authors below or to your usual KPMG contact.

For further information please contact:

• Roop Vohra

• Michelle Berners-Price