International hybrid working: The tax implications

What are the tax implications of employment and employment-related securities?

For many workers, some degree of hybrid working is now a fashionable style of work. Technology has developed and improved working methods. Most jobs are better suited using technology to produce better, more effective performance. Employees have always thought that if we can work anywhere with a good internet connection and good coffee and cake (even sunshine and a drink), we can work remotely anywhere in the world.

If an individual carries out their duties and spends time working outside of their home country, this could impact the taxation of their salary and the employee share scheme or company equity plan.

The rules, in respect of the taxation of restricted securities under the Income Tax (Earnings and Pension) Act 2003, Part 7 Chapter 2, are an especially complex area. This provides a charge to tax as employment income, in respect of chargeable events relating to the holding of employment-related securities, are restricted securities.

If the individual was a UK resident at grant, the award would have been subject to UK tax on its full value on vesting or exercise, depending upon the operation of any double tax treaty. Under the rules, only the time-apportioned part of the overall award value will be subject to UK tax.

Under the legislation, if the recipient comes into the UK during the “relevant period”, then a time-apportioned part of the overall award value will be subject to UK tax.

“Relevant period” also means you need to check the individual tax residence status for that period. If an individual moves overseas for business reasons or arrives in the UK to work, they may have to take the UK’s statutory resident test or split year treatment. These rules apply to employees who are subject to the remittance basic for one or more tax years.

If the individual is a resident overseas but is performing UK duties for any part of the relevant period that is not wholly overseas, consider the extent of UK duties to make a just and reasonable apportionment.

If an international mobile employee is a UK resident, the proportion of the employment income arising that is subject to income tax can then be calculated.

It’s important to seek professional advice as cross-border cases are highly fact-dependent and can become complex quickly.

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