Employment tax implications for cross-border workers

There has been a long history of employee movement between Northern Ireland and the Republic of Ireland. The Covid-19 pandemic and the imminent end of the Brexit transition period has recently shone a brighter focus on this issue.

With the relative ease of movement across the border, you could be forgiven for forgetting that two different tax jurisdictions are at play, and many businesses unwittingly fall foul of the complex issues that can arise.

Now more than ever, it is essential that employers understand where their employees are working and the tax obligations in these jurisdictions, so that they can put processes in place to manage this correctly.

What is often misunderstood, is that a single day’s work can result in a PAYE obligation. This is the strict position in the UK from day one, and from day 30 in ROI.  While both countries provide for exemptions and concessions, especially for short-term business visitors, often these have to be formally applied for. Even where there are short-term business visitor agreements in place, they may not apply to all employees; specifically, directors are excluded and both the Irish and UK tax authorities expect payments to directors to be pay-rolled.

Where there are PAYE obligations in the other country, then managing double taxation becomes a priority for employers and employees. While there is relief for double taxation, how it is obtained and the amount of relief will depend on a number of factors such as the employee’s residency position, varying tax rules and rates, payroll software capabilities, and appropriate permissions from the relevant tax authority.

However, it is possible for much of this to be managed through the operation of dual payrolls.  A ‘shadow payroll’ can account for tax in the other country, and relief for this tax can be obtained through the normal payroll, in the home country, in real time. This approach provides significant administration and cash flow benefits for both the employees and employer.

Relief can also be obtained through the self-assessment systems, however this route does result in delays in claiming foreign tax relief.

The good news is historic positions can be rectified, and both tax authorities are aware of the complexity and often take a pragmatic approach in such cases.

The social security rules deserve an article of their own, but in short, exemptions from foreign social security are available.