May 6, 2021

Brexit: A Social Tax Update for the United Kingdom

Towards the end of 2020, those of us in the global mobility industry felt nervous about how Brexit might impact global assignments.

Before Brexit, the United Kingdom was part of the European Union, and the employee and company could therefore be exempted from social taxes on the employee’s compensation in one country, provided an A-1 certificate of coverage was obtained from the other country (certifying that the employee is covered by that country’s social system). That kept the company and employee from having to pay social taxes to two countries.  Post-Brexit, without a totalization agreement in place, or if other law does not override, both home country and host country social taxes could be applicable.

After the United Kingdom’s withdrawal from the European Union, those built-in double social tax protections were no longer valid.

Social Taxes – New Relief from Double Taxation

The United Kingdom and the European Union reached an agreement to continue to coordinate social tax contributions between the countries, thereby limiting double taxation. European/United Kingdom international assignments can still be exempted from social tax liability in more than one country.

A few important considerations to note about this new rule:

  • The exemption is only good for 24 months.
  • A certificate of coverage is required.
  • Employees working in many countries can be automatically covered by multi-state rules.
  • The exemption only applies to the actual European Union member states. Other countries that participate in EU social security regulations will be dependent on their independent social security agreements with the UK.
  • Employees who were on assignment before January 1, 2021, are still covered by the previous rules.

In Conclusion

When planning an assignment involving the UK, businesses need to evaluate for social tax considerations and compliance, whether inbound or outbound. The company must also be aware that a certificate of coverage may be needed. Decision makers may also consider limiting a three-year assignment to just two years. Lastly, depending on the assignment, a shadow payroll might need to eventually incorporate social taxes.

For more complete guidance specific to your employees’ assignments and countries, feel free to reach out to your global mobility tax team at info@glomotax.com.

Kyle Miller, EA

Kyle is a Tax Manager at Global Mobility Tax. Prior to joining the team in 2014, he spent 4 years at a Big 4 accounting firm. Working and studying internationally was what led Kyle to his career supporting international clients and their globally mobile employees. Kyle is an Enrolled Agent with the IRS. He received his Bachelor of Arts from Stanford University with honors and obtained his Master of Business Administration from European University, also with honors.




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