This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

US citizen choosing to work from home in UK

DAC64
Posts:2
Joined:Wed Aug 17, 2022 1:52 pm
US citizen choosing to work from home in UK

Postby DAC64 » Wed Aug 17, 2022 2:02 pm

Hi

A US citizen was given the option to work from home by his employer. The employer is US resident with no operations in the UK. The employee has chosen to relocate to the UK as part of the working from home option - employer has no issues with this. The employee intends to remain in the UK long term, taking up UK employment in due course (2 to 3 years from now).

The queries that arise are:- does the US employer need to register in the UK for PAYE?
The employee will pass the 183 days in the UK so will become resident for tax purposes - there will be no other income apart form the US salary - are there any UK tax implications?

Thanks in advance

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US citizen choosing to work from home in UK

Postby darthblingbling » Wed Aug 17, 2022 8:50 pm

NI implications, more than likely the employee will need to register to pay Class 1 NI via a direct payment system.

PAYE likely as well for the individual via the same or similar scheme.

Employer may not be obligated to operate these, but may do so to make life easier for the employee.

Main one however is usually Permanent Establishment risks for the employer as the employee's activity in the UK could give rise to a corporate presence in the UK. This opens up a whole load of other implications and usually businesses that are aware of this risk aim to mitigate it and don't normally allow their employees to work remotely willy nilly without good reason.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: US citizen choosing to work from home in UK

Postby bd6759 » Wed Aug 17, 2022 9:59 pm

This bit is important.
The employer is US resident with no operations in the UK
No PAYE. No PE or corporate problem.

Correct re Class 1 and IT on earnings.

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US citizen choosing to work from home in UK

Postby darthblingbling » Thu Aug 18, 2022 1:47 am

There are cases where employees can create a pe in the host country, without all the facts it can't just be disregarded otherwise this would never be an issue for employees working remotely. I work in global mobility and international tax and this is almost a daily question to which the answer is never black or white and the solution is always based on the employer's appetite for risk.

In this case it may be low risk, but can't be said to be no risk if the employee intends to be working permanently in the UK for a significant period of time.

DAC64
Posts:2
Joined:Wed Aug 17, 2022 1:52 pm

Re: US citizen choosing to work from home in UK

Postby DAC64 » Thu Aug 18, 2022 8:54 am

Thank you for the replies. The employer is a US university who has never even considered the PE issue - most of this is down to the choice of the employee in coming to the UK. It is unlikely the the university will want to establish a PE in the UK or even a PAYE scheme. The employee intents to continue to work for the next 2 years under these circumstances, so a PAYE scheme appears to be a necessity.

Thanks again

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: US citizen choosing to work from home in UK

Postby DavidTreitel » Thu Aug 18, 2022 7:38 pm

From a practical perspective, one would always advise an individual in these circumstances to pay an estimated amount of UK tax to HMRC no later than 31 December 2022, so that there are adequate foreign tax credits to claim on the 2022 US income tax return.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: US citizen choosing to work from home in UK

Postby bd6759 » Thu Aug 18, 2022 9:20 pm

A PAYE scheme is not required unless the employer has a tax presence in the UK. An employee working here does not make the employer present.

In your case it is extremely unlikely that PAYE is needed.

Try reading this

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81610

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US citizen choosing to work from home in UK

Postby darthblingbling » Thu Aug 18, 2022 10:08 pm

One case I dealt with was for a Canadian uni that wanted to employee a Scottish professor to deliver lectures remotely and partake in research from their home in Scotland.

The PE risk was deemed to be high as the work being undertaken at his home was core to the uni's main business and it was a permanent arrangement for the life of the engagement.

If it was just admin support the risk would probably have been lower.

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: US citizen choosing to work from home in UK

Postby etf » Thu Sep 08, 2022 7:39 pm

This is a nice summary of the potential PE risk. Although it is over a decade since I was involved in such work, I used to sit opposite a Spanish lawyer who had been taught by John Avery-Jones (aka God in this area) and I remember him showing me a summary of a case where someone working from home had created a PE.


Many businesses with cross border operations (but lacking a branch network or overseas subsidiaries in those jurisdictions) rely on their globally mobile employees to maintain relationships with their overseas customer bases. These practices may have developed over a number of years in line with the growth of the business and frequently without any consideration being given to the potential tax consequences of such assignments.

Where such employees are regularly conducting business in other jurisdictions, and particularly where contracts are being concluded with customers in those jurisdictions, there is a risk of the business creating a permanent establishment and thus becoming liable to local taxes.

Such activities have been subject to greater scrutiny from tax authorities in recent years and in view of base erosion and profit shifting (BEPS) Action 7, this attention is only likely to increase in the future.

This briefing will consider some of the ways in which globally mobile employees may create a permanent establishment.

If a non-UK resident company has a UK permanent establishment, then the profits of the business that are attributable to that permanent establishment are chargeable to UK Corporation Tax.

A permanent establishment of a non-UK resident company exists in the UK if:

the non-UK resident company has a fixed UK place of business through which its business is wholly or partly carried on; or
an agent acting for the non-UK resident company has, and habitually exercises in the UK, authority to do business on the company's behalf and that agent is not of independent status acting in the ordinary course of its business.
Agency permanent establishment risk
The most likely situation in which a globally mobile employee can create a permanent establishment in another jurisdiction is where the employee is deemed to be a dependent agent acting on behalf of the company.

Factors that may point to an agency permanent establishment are as follows:

if the employee has the ability to bind the company in any way or exercise any discretion on behalf of the company;
if the employee can enter into contracts on behalf of the company;
if the employee has the authority to act on behalf of the company, and
if the employee has dependent status (i.e. there is a high level of control exercised over them by the company, they don't bear the entrepreneurial risk for the business that they carry on for the company, and/or the company places a low degree of reliance on their skill and knowledge).
Fixed place of business permanent establishment risk
Most fixed place of business permanent establishments will arise where a business has a clearly identifiable base of operations such as a branch or office. However, the absence of these traditional bases of operations does not completely remove the risk of creating a UK permanent establishment through a fixed place of business. Organisation for Economic Co-operation (OECD) proposals published in 2012 and a number of non-UK cases have highlighted the possibility that an individual who works from home can be deemed to be working from a fixed place of business.

HMRC commentary suggests that no fixed place of business permanent establishment would be created if a non-UK resident company employs sales staff in the UK who simply travel around from their private residences to seek orders. However, these scenarios can be very fact specific so they should be considered on a case by case basis.

In the event that the employee does create a fixed place of business permanent establishment through home working, it may also be possible to apply the exception from creating a fixed place of business permanent establishment where the activities carried out by the employee are preparatory or auxiliary in relation to the business of the company as a whole.

Employment taxes
In addition to the corporation tax consequences of having a UK permanent establishment, the income of the employees of the permanent establishment will also be subject to UK income tax and NICs from the first day of the existence of the permanent establishment.

Non-UK jurisdictions
The permanent establishment rules in many jurisdictions reflect the OECD guidelines and thus are broadly similar to the UK rules. However, in other jurisdictions there may be significant local differences or there may be no legal definition of a permanent establishment.

As such it is imperative that companies with employees who regularly work outside of the UK should obtain appropriate local advice in order to manage permanent establishment risks.

Recommendations
Monitoring permanent establishment risk should be an ongoing process and clear guidelines should be implemented by companies in order to track the position appropriately.
Permanent establishment rules vary across jurisdictions and it will therefore be necessary to obtain local advice in order to ensure compliance.


Return to “International Tax”