Following on from our recent blog regarding businesses having a global mobility policy, we have seen a number of cases where the need for a robust policy has come to the fore.
One of most common situations we have encountered is where a Company has sent one of their employees to work overseas for a period of 2/3 years. During this secondment the employee was tax equalised to the UK and therefore was to be no better or worse off working overseas than he would have been had he remained in the UK. Given that the employee was working overseas on a full time basis, it was expected that he would be non UK resident and therefore the earnings from duties overseas would fall outwith the scope of UK tax resulting in there only being a tax liability in the overseas location.
As UK residence is determined by the Statutory Residence Test (SRT), the above position was reliant on the individual ensuring that they met the requirements of the test to be considered as non UK resident.
In this case, due to the individual’s own personal circumstances, he spent more days in the UK than fall under the requirements of SRT. This meant that his worldwide income came into the scope of UK tax resulting in a tax liability being due in both the UK and the overseas location.
As the employer’s policy did not detail the position in these circumstances, the employee challenged the additional tax as they would be worse off should they personally have to pick up the additional UK tax due. Given that neither the policy nor the employees secondment agreement covered this scenario the Company agreed to pick up the UK tax due on the employee’s behalf.
This then became costly for the Company as although there was a credit available to be claimed ensuring no double taxation occurred, the difference between the UK tax and the overseas location tax was still due to be paid. In addition, the full amounts were due on a grossed up basis further increasing the cost to the Company.
Should the employer’s policy and the secondment agreement, provided to the individual at the outset, have clearly stated the position if UK residency was not broken any liability to UK tax would be due by him personally, the Company would not have faced any unexpected costs.
If you have any queries surrounding your global mobility policy or require assistance with ensuring it effectively protects your business from any unforeseen costs, please do not hesitate to get in touch with Isla Mayfield, Manager (firstname.lastname@example.org) or your usual AAB contact for more information.
Global Mobility is changing - how robust is your policy? Watch our video below.