Thought Leadership

Brexit: the potential tax implications for EU employees living and working in the UK

In part two of this Brexit series Jackie Hendley of Smith Cooper explores the potential UK tax issues of Brexit, in particular what a 'No Deal' Brexit might mean for EU employees living and working in the UK.

Main Image

With D-Day for Brexit looming, and with no deal currently agreed between the UK and EU, Jackie Hendley of UK (Midlands) accounting firm Smith Cooper outlines the key tax issues HR and Tax Directors need to plan for in the event of a ‘No Deal’ scenario in March 2019.

Many companies and individuals from the EU are asking the global mobility experts at Smith Cooper what the impact will be for foreign assignees coming to the UK.

Under a transition arrangement, EU law will continue to apply until 31 December 2020. Although the precise details are not yet known, it is not currently anticipated that there will be any planned changes to the tax status of EU nationals. It is expected that any future treatment will be determined based on the status of the EU national i.e. Settled status, Pre-settled status or neither.

When looking at the impact, it is necessary to look at where negotiations currently stand. Right now, the precise details are unknown – indeed, there is talk about a potential ‘No Deal’ if the UK and EU fail to reach agreement on the terms of the UK’s departure negotiated under Article 50 of the Lisbon Treaty.

The two year period outlined in Article 50 ends on 29 March 2019 and unless all 29 EU countries agree to extend that period, the withdrawal agreement will have to be tied up before then. If there is no withdrawal agreement, this would mean no transition period after Brexit.

What would happen in the event of a 'No Deal'?

In a ‘No Deal’ scenario, there would be no transition period and, as such, there would be no specific agreement on the future rights of EU citizens in the UK and border checks would be re-imposed.

Social security arrangements with EU countries will need to be renegotiated. Currently, employees moving within the EU are only subject to social security contributions from one of those countries. This would need to be renegotiated.

When overseas employees come to the UK to work, they need to adhere to the legislation which covers short-term business visitors. Unless they are able to obtain exemption under this legislation, PAYE tax and National Insurance contributions (NIC) will be due in the UK from day 1 and the individual will have to negotiate any relief for the double tax/social security in their home country of tax. Strict PAYE requirements for employees on short-term business visits to the UK can only be relaxed in certain circumstances and, of relevance here, where there is a Double Tax Treaty under which the Dependent Personal Services / Income from Employment article exists.

Without EU membership, individual tax treaties and social security agreements will have to be agreed. Despite previous arrangements, it cannot be guaranteed that there will be any automatic relief or exemptions.

If the individual is on a permanent contract rather than a secondment, any travel and accommodation expenses met or provided in the UK at or near to their place of work will also be taxable as benefits in kind.

Where individuals are providing their services via a Personal Service Company and the end user is a public sector organisation, the new IR35 Off Payroll Rules apply and PAYE tax/NIC will be withheld from invoices if they are deemed to fall under those rules.

In respect to healthcare, European Health Insurance Card arrangements will cease.

As can be seen, the precise arrangements post 29 March 2018 are not yet known (and may well have changed by the time you read this article). We therefore recommend that you and your clients assess any foreign assignees as the Brexit talks progress and take appropriate advice. 

Please contact Jackie Hendley or visit the Smith Cooper website.