OTS review of hybrid and distance working: Call for evidence

The Office for Tax Simplification (OTS) has published a call for evidence ‘Review of hybrid and distance working’ which explores the emerging trends in working practices in the UK and across borders, and their interaction with existing tax rules. 

Background

Recent years have seen considerable changes in how people are able to work. The OTS notes that many working arrangements now allow for flexibility as to where work is carried out.

In this changing environment existing rules and guidance, such as those around Employee expenses and concepts such as 'Permanent workplace', can appear to be designed for traditional ways of working.

This contrasts with over forty jurisdictions worldwide offering ‘digital nomad’ visas to attract mobile workers. Many of these are aimed at a tax-free stay for the visitor.

Call for evidence

The call for evidence now published is intended to be a high-level evidential review of:

• The current extent of hybrid and distance/Home working, and whether this is likely to increase.
• Whether current and future trends involve more working across borders.
• Whether changes in working practices give rise to any tax complexity or challenges for employers and employees, as well as small businesses.

The main focus of the review is trends in:

• Employees of UK companies working overseas (not on formal expatriate assignments).
• Employees of overseas employers working in the UK (not on formal expatriate assignments).
• Hybrid and distance/home working within the UK.
• Impacts on practices of the self-employed.

Income Tax, social security, employee/Self-employed expenses and allowances along with Corporate residence and permanent establishment implications for companies will be considered.

A report of findings is expected in early 2023.

How to respond

The call for evidence closes on 28 October 2022. Responses should be sent by e-mail.

Employees and the self-employed can also take part in the OTS’s hybrid working survey

Consultation questions

General

1. Please provide background information on the size of your business, the sector, the number of employees, and the number of countries you currently operate in.
2. If your answers only relate to certain parts of the business, please provide details of any differences elsewhere. For example, distance working may only be allowed for certain job roles, levels of seniority or types of contracts. Where distinctions have been made, it would be helpful to understand the reasoning.
3. Please provide details of any trends you are seeing in the areas covered by this review, even if emerging or high level. We would be grateful for any supporting data, and please highlight if the insights are anecdotal.

Employers: employees working in a different country to their employer

4. Please note whether the business you are responding for or about is based overseas or in the UK.

What is happening and how have things changed

5. Pre-pandemic: Did the business have employees working across borders before the pandemic that were not on traditional expatriate assignments? If so, please provide details of:
   1. Numbers (relative to the whole business),
   2. Types of roles, seniority, or other relevant distinctions for those who did, and why those distinctions were made,
   3. Details of how the business managed the tax and payroll reporting and other compliance requirements for these employees or officers.
6. During the pandemic: How did the pandemic change this?
   1. Did the business have employees working from home in other countries for the first time?
   2. Was this the first time the business had people working in the UK?
   3. Did the company’s business procedures and policies change?
   4. Did the pandemic make it harder to keep track of employees’ working locations and did that cause any tax, social security, payroll or other compliance issues?
7. Emerging from the pandemic: Where are your employees now working, what are the location arrangements (contractual or casual) and are these trends for short-term working (such as after a holiday), or long-term relocation (such as to where the family is located)?
   1. If employees working in different countries from their employer are new to the organisation, how easy has it been to understand the tax, social security, payroll and other implications of this?
   2. If the organisation always had employees working in different countries, have any new tax, social security, and payroll compliance issues arisen?
   3. Have you had to consider the possibility of new permanent establishments due to the changes in working arrangements?
   4. Have there been any impacts on reporting obligations or claiming reliefs and allowances such as overseas workday relief, temporary workplace (detached duty) relief, modified payroll reporting and short-term business visitor reporting?
   5. Have there been any impacts on pension and share scheme policies and tax reporting requirements?

Policies and procedures

8. Since the pandemic have you changed your policies and procedures regarding employees working from other countries to where their employer is based? If so:
   1. What was your reason for doing so?
   2. What are your new policies and procedures?
   3. Do you specify certain countries in your policies and if so, what checks did you do when compiling the list of countries?
   4. To what extent has your ability to recruit and employees’ requests for flexible terms driven changes to policies?
   5. Does the policy state who will pay the tax and social security in the other country if any is triggered?
   6. Who will pay the travel expenses of the employee?
   7. Who will consider any visa or other immigration issues?
   8. Are there any restrictions on employees taking equipment overseas and accessing data from overseas locations?
   9. How confident are you that you know where your employees are choosing to work? What steps are you taking to monitor the location of your employees? Have you had to implement new procedures/technology to be able to do this or have you been able to do this through existing means?
9. Looking forwards, do you expect to continue to evolve your approach to overseas working over the coming months?
   1. Do you have any plans to constrain overseas working and if so, how?
   2. What factors are you expecting might alter your approach?
   3. Do the current tax rules allow you to change your approach when there is a business need?

Employers: employees based in the UK working remotely in the UK

What is happening and how have things changed

10. Pre-pandemic: Where were your employees working – wholly remotely, hybrid, or wholly in the office? How did this vary by seniority, role or other distinctions, and why?
11. During the pandemic: How did the pandemic change this?
    1. Did the company’s business procedures and policies change?
    2. What was your policy during the pandemic in terms of claiming the working-from-home allowance? Did you pay it as a business expense to your employees or did they claim it directly from HMRC?
    3. What expenses and allowances did you pay directly to employees when they worked from home or did you provide them with equipment or an allowance to buy equipment?
    4. Did the new arrangements give rise to any tax or payroll reporting issue, for example, in relation to the treatment of expenses and allowances?
12. Emerging from the pandemic. Where are your employees now working: wholly remotely, hybrid or wholly in the office? How does this vary by seniority, role or other distinctions and why?
    1. Have the new working arrangements given rise to any tax or payroll compliance challenges, including in relation to the treatment of employee expenses?
    2. What specific issues have you identified with the interaction between the existing permanent workplace rules and any new hybrid working pattern? Are any changes to the guidance needed to make things clearer?
    3. What expenses and allowances are you still paying/equipment you are still providing in relation to working from home? Are you clear on the tax treatment of these?
    4. Do individuals still have the working-from-home allowance in their PAYE codes?

Policies and procedures

13. Since the pandemic have you changed your policies and procedures regarding employees' working location? If so:
    1. What was your reason for doing so?
    2. What are your new policies and procedures?
    3. To what extent has your ability to recruit and employees’ requests for flexible terms driven changes to policies?
    4. What steps are you taking to monitor the location of your employees? Have you had to implement new procedures/technology to be able to do this or have you been able to do this through existing means?
14. Looking forwards, are you likely to continue to evolve your approach to hybrid and distance working over the coming months?
    1. Do you have any plans to constrain working from a non-office location and if so, how?
    2. What factors are you expecting might alter your approach?
    3. Do the current tax rules allow you to change your approach when there is a business need?

Self-employed

15. Have your practices in terms of where you perform your work changed since the pandemic, and if so, how?
16. Have you seen any new trends in self-employed working since the pandemic?
17. Have any changes to your working practices given rise to new income tax, social security, or permanent establishment risks or issues? Or have changes in others’ practices done so? If so, please explain.
18. If you are currently working abroad, do your customers/clients prevent you from performing certain activities or taking data overseas?
19. If you receive work through one or more online platforms (gig workers, for example), or represent those who do, do you consider work through online platforms is more mobile or flexible in terms of location now? Do the platforms or the end customers know where people are working?

Permanent establishment and corporate residence

20. Has your business had to consider whether the activities of employees or officers might create new permanent establishments in other territories?
    1. What happened to make this a consideration?
    2. Did you consider this a risk or an opportunity?
    3. What actions if any were taken to mitigate or prevent it?
21. Has your business had to consider whether the location of senior staff might change the corporate tax residence of the company?
    1. What happened to make this a consideration?
    2. Did you consider this a risk or an opportunity?
    3. What actions if any were taken to mitigate or prevent it?

Useful guides on this topic

Working from home (employees)
What expenses can employees claim for homeworking? Are the rules the same for the self-employed? How do you make a claim? How does the COVID-19 easement work?

Companies: Permanent establishment & residence
What are the rules for determining a company's country of residence? What is central management and control? When does a company create a permanent establishment in another country?

Overseas Workday Relief (OWR)
What is Overseas Workday Relief (OWR)? When does it apply?

Travel (employer’s guide)
How do employers apply the tax rules to travel costs? What is available for subsistence costs? What are the rules on home-to-work travel?

Travel (summary for employees)
What expenses can your employer reimburse? How might travel expenses affect Income Tax and National Insurance Contributions? What journeys are allowable for tax relief?

SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?

SRT: Split Year Treatment
What is Split Year Treatment? When does it apply?

OTS: tax implications of hybrid and distance working
The Office of Tax Simplification (OTS) has published a scoping document examining the emerging trends and tax implications of hybrid and distance working.

External link

Review of hybrid and distance working - Call for evidence