Remote Working Abroad: What Are the Tax Risks?

Remote working abroad: what are the tax risks?

Remote working has made it much easier to work from another country.

You may spend a few weeks working from Europe, extend a family visit overseas, move abroad while continuing to work for a UK employer, or run a UK company from outside the UK.

From a lifestyle perspective, this can feel straightforward.

From a tax perspective, it needs more care.

Working abroad can create UK tax, overseas tax, payroll, National Insurance, company, immigration and employment law issues. The longer the arrangement continues, the more important it becomes to review the position properly.

This guide explains the main tax risks to consider.

A short trip is different from a relocation

Not every overseas working trip creates a major tax problem.

A short business trip or brief period of remote working overseas may be low risk, depending on the country, the length of stay, the work performed and the employer’s policies.

However, the risk increases where:

• You work overseas for a longer period
• You repeatedly work from the same country
• You move your home overseas
• Your family moves with you
• You become tax resident in another country
• You work for a UK employer while abroad
• You run a UK company from overseas
• You serve clients in the overseas country
• You hire people overseas
• You sign contracts or make management decisions abroad

Remote work should not be treated as tax neutral simply because the employer, company or clients are based in the UK.

UK tax residence

The first UK question is whether you remain UK tax resident.

The UK uses the Statutory Residence Test to determine tax residence for each tax year.

The test considers factors such as:

• The number of days you spend in the UK
• Whether you have a UK home
• Whether you work in the UK
• Whether you work full time overseas
• Your family ties
• Your accommodation ties
• Your previous UK residence
• Your pattern of visits to the UK

HMRC’s guidance explains that the Statutory Residence Test is applied separately for each tax year. You can read the current guidance on the GOV.UK Statutory Residence Test page.

If you remain UK tax resident, you may continue to be taxable in the UK on worldwide income and gains, subject to any reliefs or treaty provisions.

Becoming tax resident overseas

Working remotely from another country may also make you tax resident there.

Each country has its own residence rules. Some countries consider day counts. Others look at home, family, economic interests, registration, visas or where work is physically performed.

This means you could potentially be:

• UK tax resident only
• Resident only in the overseas country
• Resident in both countries under domestic rules
• Treated as resident in one country under a double tax treaty tie-breaker

Dual residence can create complicated reporting obligations, even where double taxation relief is available.

Where the work is physically performed

For employment income, the place where the duties are physically performed is often very important.

If you are sitting in Spain, France, Germany or another country while doing your work, that country may consider the work to be performed there, even if:

• Your employer is in the UK
• Your clients are in the UK
• You are paid into a UK bank account
• Your contract is governed by UK law
• Your laptop and systems are UK based

This can create overseas tax, payroll or social security obligations.

UK PAYE for employees working abroad

If a UK employee works abroad, the UK employer may still need to consider PAYE.

HMRC’s guidance says that how PAYE and National Insurance are calculated for employees working abroad depends on where they are working and how long they are expected to work there. You can check the current guidance on the GOV.UK employees working abroad page.

In some cases, UK PAYE may continue.

In other cases, the employer may need to consider whether a change to PAYE treatment is needed, whether foreign tax credit relief can be applied through payroll, or whether overseas payroll obligations arise.

The employer should not simply stop operating PAYE without reviewing the position.

Overseas payroll risk

If an employee works remotely from another country for long enough, the employer may have payroll obligations in that country.

This can include:

• Registering as an employer overseas
• Withholding local income tax
• Paying employer social security contributions
• Filing local payroll reports
• Complying with local employment rules
• Dealing with local benefits or labour law requirements

These obligations can arise even where the employer has no office in the overseas country.

This is one reason employers are often cautious about employees working abroad for extended periods.

National Insurance and social security

Tax and social security are separate issues.

If you work abroad, you may need to pay social security contributions in the country where you are working.

However, in some cases, you may continue paying UK National Insurance for a period, particularly where the work abroad is temporary and the relevant international agreement applies.

GOV.UK explains that if you work abroad, you will usually pay social security contributions in the country where you are working, but you may need to pay UK National Insurance instead depending on where you work and for how long. You may also need a certificate to show that you pay in the UK. You can check the current guidance on the GOV.UK National Insurance if you work abroad page.

For work in the EU, Gibraltar, Iceland, Liechtenstein, Norway or Switzerland, a certificate may be needed to confirm that UK National Insurance continues to apply. HMRC provides guidance on applying for a certificate on the GOV.UK CA3822 page.

A1 certificates and certificates of coverage

An A1 certificate, or certificate of coverage, can help show which country’s social security system applies.

This is particularly relevant where someone is temporarily working in an EU country, EEA country, Switzerland or another country with a social security agreement.

Without the correct certificate, there may be a risk of social security being requested in the overseas country, even where UK National Insurance is continuing.

These applications should be considered before the overseas work starts where possible.

Permanent establishment risk

Remote working can also create risk for the employer or company.

If an employee, director or business owner works from another country, the overseas tax authority may ask whether the business has created a taxable presence there.

This is often called permanent establishment risk.

The risk may be higher where the person overseas:

• Negotiates or signs contracts
• Makes key management decisions
• Generates significant revenue
• Has authority to bind the company
• Works from a fixed location for a prolonged period
• Manages staff or operations
• Represents the business locally
• Provides services to local customers

A short period of low-level remote work may be lower risk. A director running the business from another country is a very different situation.

Company residence and management control

For UK limited companies, there can also be questions about corporate residence and management control.

If the company’s central management and control is exercised outside the UK, there may be a risk that another country treats the company as resident there, or that the company has tax obligations there.

This is particularly relevant for small companies where the director or owner makes all important decisions.

If the director moves abroad and continues to run the company from overseas, the position should be reviewed carefully.

Directors working abroad

Company directors working remotely from overseas need particular care.

Issues can include:

• UK Self Assessment
• PAYE on salary
• Dividend tax
• Director’s loan accounts
• Benefits in kind
• Overseas tax residence
• Social security
• Company management and control
• Permanent establishment risk
• Local registration or reporting obligations

Director fees can also be treated differently under some double tax treaties.

A director moving abroad should not assume that the same UK-only tax planning continues unchanged.

Contractors and consultants

Self-employed consultants and contractors working remotely from overseas may also create tax issues.

They may need to consider:

• UK tax residence
• Overseas tax residence
• Where the work is performed
• Whether the overseas country taxes the income
• Whether they need to register locally
• VAT or local sales tax obligations
• Social security
• Whether their UK business remains properly structured
• Whether clients require a UK or overseas contract

For contractors, the country of physical work can be especially important.

Digital nomad visas

Some countries offer digital nomad visas or remote work visas.

These can help with immigration status, but they do not automatically solve tax.

A visa may allow you to live and work in a country, but you still need to understand:

• Local tax residence
• Income tax
• Social security
• Employer obligations
• Reporting requirements
• Treaty position
• Whether UK tax continues

A visa approval should not be treated as tax advice.

Double tax treaties

If two countries both try to tax the same income, a double tax treaty may help.

A treaty may decide:

• Which country has primary taxing rights
• Whether employment income is taxable in one or both countries
• How residence tie-breakers apply
• Whether director fees are treated differently
• Whether permanent establishment exists
• How double taxation relief is given

However, treaties do not usually remove the need to file tax returns or keep records.

They also do not automatically prevent payroll or social security obligations.

Foreign tax credit relief

If income is taxed in both the UK and another country, Foreign Tax Credit Relief may be available.

This can reduce the UK tax due by giving credit for foreign tax paid, subject to limits.

The calculation depends on:

• The type of income
• The foreign tax paid
• The UK tax due
• The relevant treaty
• The timing of the tax
• Whether the income is correctly reported

Foreign tax paid should not simply be ignored or netted off without checking the correct treatment.

Working abroad while remaining on UK payroll

Many remote working arrangements start informally.

For example, an employee asks to work from another country for a few weeks and continues to be paid through UK payroll.

This may be fine for a short, controlled arrangement, but it should still be reviewed.

Questions include:

• How long will the employee work abroad?
• Which country are they working from?
• Will they become tax resident there?
• Does the employer need local payroll advice?
• Does UK PAYE continue?
• Is an A1 certificate needed?
• Are there immigration or visa restrictions?
• Are there data protection or employment law issues?
• Does the employer have a remote working policy?

The longer the arrangement lasts, the less suitable an informal approach becomes.

Working abroad as a shareholder director

A shareholder director may take salary, dividends or both.

Moving abroad can affect the personal tax position on each type of income.

For example:

• Salary may be connected to where duties are performed
• Dividends may be taxed based on residence and treaty rules
• Director fees may have specific treaty treatment
• Benefits and expenses may need review
• Director’s loan account treatment remains important
• UK Self Assessment may still be required

Where the company and director are closely connected, there may also be company-level risks.

VAT and overseas customers

Remote working abroad may also affect VAT or local sales tax, especially where the business supplies customers in multiple countries.

Issues can include:

• Where the customer belongs
• Whether the customer is a business or consumer
• Whether the service is digital
• Place of supply rules
• Local VAT or sales tax registration
• Reverse charge treatment
• Invoicing requirements

This is especially relevant for consultants, agencies, software businesses, online educators and digital service providers.

Employment law and immigration are separate issues

Tax is only part of the picture.

Remote working abroad can also raise:

• Immigration and visa rules
• Employment law
• Health and safety
• Insurance
• Data protection
• Permanent establishment
• Payroll registration
• Local labour rights
• Employer pension obligations

An arrangement can be acceptable for UK tax purposes but still problematic under immigration or employment rules in the overseas country.

Records to keep

Good records are essential for remote working abroad.

You should keep:

• Dates spent in each country
• Days worked in the UK
• Days worked overseas
• Travel records
• Employment contract or remote working agreement
• Evidence of where duties were performed
• Payslips and payroll records
• Overseas tax filings
• Foreign tax payment evidence
• Social security certificates
• A1 or certificate of coverage documents
• Details of clients served while overseas
• Board minutes and company decision records
• Evidence of where key company decisions were made

These records can be difficult to reconstruct later.

Common mistakes

Common mistakes include:

• Assuming remote work abroad is just a lifestyle choice with no tax impact
• Counting only UK days and ignoring overseas tax residence
• Continuing UK payroll without checking local obligations
• Assuming an A1 certificate is not needed
• Ignoring social security
• Running a UK company from overseas without considering company tax risks
• Signing contracts abroad without considering permanent establishment
• Assuming a digital nomad visa solves tax
• Forgetting to claim foreign tax credit relief
• Not keeping travel and workday records
• Ignoring local employment law and immigration rules

These issues are easier to manage before the arrangement becomes long term.

Practical checklist

Before working remotely abroad, ask:

• How long will I work overseas?
• Which country will I work from?
• Will I remain UK tax resident?
• Could I become tax resident overseas?
• Where will my employment duties be physically performed?
• Will UK PAYE continue?
• Could overseas payroll be required?
• Which country’s social security applies?
• Is an A1 certificate or certificate of coverage needed?
• Am I allowed to work there under immigration rules?
• Could my employer or company create a taxable presence overseas?
• Am I a director making company decisions from overseas?
• Do I need local tax advice?
• What records should I keep?

How CooperFaure can help

CooperFaure can help individuals, directors and business owners understand the UK tax issues connected with remote working abroad.

We can support with:

• Reviewing UK tax residence
• Considering Self Assessment reporting
• Reviewing salary, dividends and director income
• Considering UK PAYE and National Insurance issues
• Identifying when overseas payroll advice may be needed
• Reviewing UK company director risks
• Considering foreign tax credit relief
• Helping identify when specialist overseas advice is required

If you are planning to work remotely from outside the UK, or you already do so and are unsure about the tax position, it is best to review the arrangement before it becomes a problem.