Publish Date

Jan 14, 2021

“Accidental” Expats

A&M Tax Advisor Update

In the second of our short series of Reward & Employment Tax Solutions related articles on 2020 matters  and actions to take before the start of the 2021/22 U.K. tax year, we look at individuals who were intended to work from a particular work location but find themselves in a different work location, for example because of:

  • Choosing to “go home” or to a different 2nd home/work location.
  • Their particular work location is closed or is an area which is subject to lockdown conditions, so are in another location.
  • They were or became “trapped” in a different location due to travel restrictions.
  • Their secondments or assignments were cut short early or they didn’t start a new assignment.

This has resulted in a relatively new growth in “accidental expats.” Remote working appears to be more readily accepted as standard practice. We summarise below key issues commonly seen in our experience and some practical tips to help.

Immigration, legal and regulatory obligations

Now the U.K. has left the E.U., and for other country combinations, in any event, it is imperative that the correct immigration rules and procedures have been followed. It is key that an employee has the correct right to work in a different location, and just as importantly is able to return to their original location when it is safe for them to do so. With pre-settled and settled status now a reality in the U.K., this should be considered above all else. From practical experience, no-one wants to get the call that an individual has been stopped by border control officers on their way into or out of a country. This is especially true in the midst of a pandemic and where negative Covid tests may have to be evidenced within a specified time-limit, to prevent the need to self-isolate. The more senior the individual or the more politically unstable the country; the greater the fallout could be.  In addition, we know that some countries use immigration data for tax and/or social security purposes, so this links with the below.

Through working in a different jurisdiction, employees may also need to be subject to additional legal or regulatory requirements, could accrue additional employment rights, and even their remuneration may need to meet local obligations (such as minimum wage, bonus, profit related pay, or caps on bonuses etc). Anyone with share plans or deferred compensation arrangements may also now have local obligations and the potential for creating trailing liabilities.

Personal income tax, and where this may become an employer responsibility

Income tax of individuals is usually payable where the work is performed, not where the person resides or where their employment contract was entered into unless certain conditions are met to simplify or remove this obligation. If an individual is now working in an overseas location, not only may they have to register with the local authorities to let them know they are there, the employer may also have registration, payroll withholding or tax return obligations.  If an individual spends enough time in that country, they may also accidentally become formally tax residents and may be liable to other taxes and reporting liabilities i.e. on income and/or capital gains, inheritance tax, etc. Thankfully each country will have its own rules on this, and there are double taxation agreements between a number of countries to help avoid double tax, but tax as we all know is complex…