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Blog - Published 21st June 2016

In or out? How will the EU referendum affect the taxation of ‘Expats’?

Cross boarder workforce

With the EU referendum too close to call, one of the major areas of focus for both sides has been the free movement of workers. Whether this is a benefit for economic growth or a strain on resources depends on which side of the debate you are on.

Statistics show that there are approximately 2.25 million EU workers in the UK. This is about 65% of all non UK workers the balance being from outside the EU.

Should the UK vote to leave the EU, what changes could we expect with regard to expat workers in the UK? Below are the possible impacts:

The Employer

PAYE

The employer obligations for the operation of PAYE are determined by UK legislation. If you employ, pay or use a worker in your business you will have the requirement to operate PAYE unless use can be made of the business visitor scheme. Whether the UK remains within or leaves the EU, this will be unchanged.

Social security

Social security is determined by EU regulations which take priority over UK local legislation. As the employers liability follows the employees, this could have an effect if the EU regulations no longer apply.

At present, EU regulations allow posted workers to continue paying into their home country scheme for 24 months. The UK legislation excludes individuals usually resident and working overseas from contributions for 52 weeks only. EU posted workers could therefore be subject to UK rather than their home country social security for the second year of a two-year assignment. This would mean a UK secondary as well as primary charge for the second year.


The Employee

Expat taxation

The individual workers tax position is based on residence and domicile and is subject to the network of double tax treaties that the UK has negotiated. These treaties are between the UK and the relevant country independent of the EU. Therefore whether the UK chooses to remain part of the EU or leave, the tax position will not change.

Social security

Social security could become more complex. At present EU regulations determine which country contributions are paid when work is undertaken in more than one country. Within Europe it is not uncommon to have cross border workforce – for example manufacturing – who could find they pay on parts of their earnings in different countries.

The UK has very few social security agreements so it could be argued that EU workers would apply the same rules as most of the world.


Supply of workers

Although the taxation and social security position is not likely to be significantly affected by the EU referendum, the result of the referendum could affect the supply of workers from outside the UK. Reports suggest that a high portion of EU nationals working in the UK are in low skilled, low wage occupations. Non EU nationals require a visa so tend to be skilled workers.

Should the UK vote to leave the EU, there may be restrictions imposed on EU workers, and thus enable more non EU workers to come into the country, but this would depend on any negotiated trade deals. This could have the following impact:

  1. An adverse effect on the ability of UK business to bring in low skilled EU workers.
  2. It could result in an influx of skilled workers who are necessary for innovation and development projects.

The complexities of the EU referendum mean that whatever the result businesses will need to adapt. What is clear however is that the impact of a vote to leave the EU (in relation to expat taxation) is likely to be measured in years not months, during which any workers already in the UK are unlikely to be asked to leave.

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