Mobility and the taxman

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HMRC is broadening of the “expatriate tax net” making more complex demands on HR and global mobility professionals – Will Schofield explores some of the issues

Despite ever improving telecommunications there is a widely held expectation that the number of internationally mobile workers will continue to increase over the coming years.  Furthermore, our world continues to shrink in terms of “time travel” but expand in terms of locations for travel and who might be on the move.  In other words, it is getting easier to move around and more of the world is joining in.  And that presents a challenge for the HR community and an opportunity for the taxman.

As the number of itinerant workers expands, mobility is becoming far more of a strategic priority within the C-suite, so the pressure on HR to deliver swift, efficient and compliant mobility programmes grows.  In the past, assignments tended to be largely “traditional” with full relocation packages, tax support and several years of absence from the home country all in the mix.  Today we are seeing a proliferation of assignment types, from the old-fashioned “traditional”, to short term, commuter, project based or unaccompanied assignments.  Each of these assignment types demand their own policies and procedures with the implications of a commuter assignment, for example, being vastly different from the traditional ones.

With this wide variety of assignment type, coupled with increasing pressures on profit margins, the focus on the cost of mobility programmes continues to grow.  A recent survey conducted by PwC found that just ten per cent of respondents were able to measure accurately the total cost of their mobility programme, with as many as 75% having this as an aspirational goal within the next two t0 three years.  Such a transformational change within business will require the adoption of new technologies, changed business processes and the development of new methodologies for measuring the indirect costs of mobility, for example business disruption and the impact on personal performance and staff turnover associated with mobility.

Respondents to the above mentioned survey also highlighted return on investment as being another key area to consider.  Considering cost alone only gives half the picture – an extremely expensive assignment that delivers considerable benefit to the business is of far more value than a cheap assignment, that delivers little or no value.  However, just five per cent of the respondents indicated that this type of analysis was undertaken at the present time although some 55% aspired to get there within a two to three year time-frame.

For the taxman, and indeed the “social security man”, this growth in the number of mobile workers, and the complexity that goes with it, provides an ideal forum in which to review and enforce compliance and to collect the optimum level of tax and social security.

The tax man cometh

An excellent example of this level of focus on mobile workers can be seen by HMRC’s approach to short term business visitors, those people often seen as exempt from UK tax and flying under the radar.  With growing emphasis on tracking, data management and compliant reporting HMRC are pushing employers hard on formalising “short term business visitor” (STBV) agreements.  As the legislation is written, a PAYE obligation arises on the earnings of an individual working in the UK, regardless of duration.  However, HMRC acknowledges that this presents some serious practical issues for many businesses and has agreed to relax the strict rules for the majority of travellers through their STBV agreements.  Once an agreement is in place a business can legitimately not withhold PAYE assuming the traveller meets certain criteria.

In return for this relaxation of the rules a business needs to commit to HMRC that it will install a robust tracking mechanism by which the number of days any individual business visitor spends in the UK can be monitored.  Not only will this provide greater accuracy of information for HMRC, but is likely to create a new source of revenue, from those who were previously below the radar, for example business visitors from non-double tax treaty countries who cannot be included in a STBV agreement or those whose stay in the UK becomes long enough to create an actual tax liability!

Another example of the development of a revised approach to the taxation of international workers lies in a couple of specific pieces of tax legislation, applying to the taxation of real estate and share options.  Without going into detail, the UK tax rules on these specific areas are due to change such that the UK rules become very similar to those applying in many other countries; namely, to subject to capital gains tax the sale of UK real estate regardless of the tax residence status of the vendor and to bring into the tax net the income from the exercise of a share option if, at any time during the vesting period, the individual had been a UK taxpayer.  While these changes may be considered as tinkering around the edges, for an international employee there could be significant, and costly, implications.

So for those working in the mobility area it is interesting times.  From a business perspective mobility is becoming more varied, complex and strategic with the C-suite looking for cost savings and a greater return on investment.  At the same time HMRC is also giving the area greater focus with particular emphasis on compliance and the broadening of the “expatriate tax” net.  Interesting times indeed!

Will Schofield will be exploring this topic further at the Expatriate Management and Global Mobility Summit on the 8th July 2014.

About Will Schofield

Will is a London based PwC partner in their global mobility practice. He has approaching 25 years assignee tax and HR mobility experience. He is a member of both the Chartered Institute of Taxation and, more recently having completed a postgraduate diploma in HR Management, the Chartered Institute of Personnel and Development.

Will has hands on experience of being an expatriate, having worked for the firm in Australia, Russia and the Czech Republic, as well as his native UK. While in Eastern Europe Will was responsible for the broader HR Services network across 28 territories. During this time he developed a deeper understanding of the numerous challenges of doing business and managing people across a diverse range of cultures and economies.

Now back in the UK Will is responsible for the delivery of a wide range of mobility related services to a broad client base, from large multinational inbound clients and FTSE 100 companies to smaller, more niche organisations.

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