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British employees working from the beach face shock tax bills

Working abroad
Working abroad

Employees who take advantage of flexible working and move abroad for work could end up paying tax twice, accountants have warned.

Since the pandemic ushered in the age of remote working, employers have been much more flexible with where they allow employees to be based.

More than a third of employers now allow staff to work outside of Britain, according to tax advisory firm RSM.

But taking advantage of such flexibility could leave workers liable for income tax both at home and abroad, with the added sting of paying social security in the country they work.

Pawandeep Srai, of RSM, said: “Covid-19 has fundamentally changed the way in which we work now and for the long term.

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“For many, this means greater flexibility including working while on holiday, but working from a beach is not without risk for individuals and employers.”

The tax consultancy said companies have been forced to offer remote working outside the UK amid challenges in retaining staff.

Almost one in 10 businesses are battling high staff turnover, RSM said, leaving employers in a strong position to negotiate additional perks such as flexible working or additional leave.

“However, despite businesses’ best intentions to keep their people happy, they must also consider the tax risks this poses,” the firm said.

Businesses may also be liable to pay local corporation tax if, for example, an employee working in sales creates a “permanent establishment” for the employer in a host country.

The report continued: “A UK employer is responsible for operating PAYE on employees’ remuneration, deducting and withholding amounts in respect of income tax and National Insurance contributions.

“However, if an employee works abroad, overseas income tax and social security may also be due.”

Tax rules for so-called “digital nomads” vary from country to country. In Spain, for instance, employers can be issued a code of NT (no tax) if an employee is based outside the UK for the entire tax year.

Four years on from the pandemic, 16pc of British workers work from home full time, while 28pc split their time between home and the office, according to the Office for National Statistics.

Flexible working continues to extend to the public sector despite calls for civil servants to be hauled back into office buildings.

Latest HM Revenue and Customs (HMRC) figures suggest staff are routinely failing to show up to the office as customer service falls to “unacceptable levels”.

As many as two in five workers at regional HMRC centres did not go into the office at all in the year to March, figures obtained under Freedom of Information laws show.

The revelations follow a separate Freedom of Information request which disclosed hundreds of council staffers are working abroad from countries including Australia and Dubai.

HMRC said: “Hybrid working is now essential for recruitment and retention in a competitive labour market, and entirely in line with practice in many other private and public sector organisations.”

Do you work for a British employer from abroad? Get in touch at tom.haynes@telegraph.co.uk