January 5 2023

Office of Tax Simplification Reports on Hybrid and Distance Working

Source: IBFD TAx Research Platform News

The Office of Tax Simplification (OTS) has published its report, "Hybrid and distance working: exploring the tax implications of changing working practices" which, amongst others, notes that improved His Majesty's Revenue and Customs (HMRC) processes, turnaround times, more Pay As You Earn (PAYE) relaxations and better guidance are desired by many stakeholders in the United Kingdom in order to improve tax aspects of hybrid and distance working.

The OTS launched its review in autumn 2022 and asked for evidence from interested parties on the increasing trend for people to work in different ways, including across borders.

The report notes that during the pandemic, about 40% of the UK workforce worked at home for at least part of the week, supported by widely available technology. Many would like to retain this work pattern and employers have recognised this and its importance when recruiting.

The report looks at two aspects which are considered on a domestic and international basis:

  • hybrid working where employees spend some of their working time in their employer's workplace and some elsewhere (at home or in a different country); and
  • overseas distance or remote working where the employee works permanently in a different country to the business location.

On a domestic basis, the key findings relate to whether the present rules on tax deductions for expenses – such as for traveling and home working - are suitable for the new work environment and whether the rules on taxable benefits in kind require amendment. The report notes: "The pandemic may present an opportunity for government to re-evaluate longstanding rules and arrive at different approaches relevant to modern practices, without necessarily adding to exchequer costs."

The international issues include whether an employee working remotely from abroad might create a taxable presence for the employer in that other country. This is likely to require international agreement, however the UK could take steps to lead by example here.

Social security is also likely to be a complex area since it is not as well covered as tax, meaning an expansion of social security agreements is likely to be required. For those working in the UK for short periods, a policy that a limited time (say 60 days or less) would not result in a UK tax liability might be beneficial.

This is the final report by the OTS which will close when the Finance Bill 2023 receives Royal Assent.