Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.
This session was recorded on 23 November 2020. The information in the film was correct at the time of recording.
To review the key insights from the event, please view the film or read the write up below.
What are the key immigration changes and trends since March?
- There has been a general shift towards flexibility from the Home Office. Like many public and private organisations, the Home Office has been forced to adopt systems that are more digital and are catered for agile working. Indeed, many caseworkers are now based from home and are processing applications there.
- The Home Office have fast tracked their proposed use of technology to limit the need for human interaction, examples include the IDV app for reuse of biometric details, remote right to work checks and accepting scans in place or original documents.
- The Home Office also showed flexibility in relation to many applicants' country of submission – this was something that practitioners had been raising with the Home Office for many years and has become an unseen benefit of the COVID-19 pandemic.
- It has been clear that, for flexible working to work efficiently, the entire immigration ecosystem, involving advisers and the Home Office alike, must be able to handle the policies and rules in place. Some of the changes introduced by the Home Office will no doubt make life easier as an increased number of EU visa applications are expected shortly, following the end of the Free Movement rules at the end of the year.
How far will flexible working go? Will it extend to employees wanting to work even more remotely and overseas?
- It is important to note that the UK's immigration environment remains a rigid one and it could be argued that if someone can work from home and abroad, their need for a visa might be questionable.
- Other countries, particularly those in the Caribbean, have seen the COVID-19 pandemic as an economic opportunity to attract remote workers to their countries and are actively setting up visa categories to facilitate this.
- At the same time, there is a clear possibility for individuals to be caught out where they have moved overseas but presently do not have the correct immigration permission to either work or study there.
- It remains to be seen whether the UK's Immigration Rules, changing though they may be, will bend to adapt and accommodate these new working practices.
What have been the tax implications for employees who seem to be working in jurisdictions they would not normally be based in, including the UK?
- Some clients have been caught in a country they are not normally based in and have been concerned that they may have inadvertently become tax resident there, or have an exposure to tax on their employment income for work they have been doing in that country. In other cases clients embraced the opportunity to work remotely and have purposely based themselves in another jurisdiction (perhaps a holiday home) to work, and are now thinking about the tax implications of taking those steps.
- Many individuals are very careful about counting their days in the UK to avoid becoming tax resident. They have now spent more days in the UK than they usually would due to cancelled flights, border closures and quarantines. HMRC have issued specific guidance on the application of the UK's statutory residence test in relation to COVID-19 and a possible discount of up to 60 days per tax year due to being in the UK for exceptional reasons. This is of great relief to some clients, but not all. HMRC have also been clear that it is not a blanket exception, and each case must be considered on its own merits.
- Even those who do not become UK tax resident Individuals should also be mindful about being paid for work done in the UK, even where they are not or do not become tax resident in the UK. Double tax treaties may provide some relief in these scenarios but advice should be sought.
- On the flipside, clients who are spending more time in countries outside of the UK need to be aware of local rules to ensure they do not become tax resident or that they do not incur a tax exposure, even if not technically tax resident there. Again, local advice may be required and a careful analysis of any relevant double tax treaties.
What impact could this have on the companies they are involved with in the short and long term?
- Employers and employees need to be aware of the operation of payroll and getting their tax obligations right – there has been an increase in individuals wanting to become non-resident. Employees should seek advice as to their exposure to UK Tax as non-residents. Employers should ensure they have an open dialogue with employees and seek tax advice before amending payroll/tax deductions simply based on the word of an employee.
- Companies should also ensure that they take the correct steps so that they are not UK tax resident if that has been their aim historically. There has been an increase in key company personnel being in the UK for a number of reasons directly related to COVID-19 and some are worried that this may bring their companies into the UK tax net. HMRC and the OECD have given guidance on this point to ensure that decisions made in this exceptional and temporary period of the pandemic do not have that effect. The key for these companies will be recording their steps diligently and being able to show that pre and post lockdown, key business and management decisions were being made outside of the UK.
- Companies should also be thinking about the future – what will employees be looking to do in the future and on a more permanent basis? If more long-term decisions are considered, companies should look to get advice sooner rather than later as reliefs that may have applied on a temporary basis due to exceptional circumstances could be lost if the place of management of the company changes in the longer term.
What should employers do to make sure their working from home arrangements are operating as they should be?
- The key point for employers will be to distinguish temporary arrangements and those that might be carrying on in the longer term. Generally speaking, COVID-19 has forced employers to jump forward in terms of flexible working by about a decade.
- Health and safety – employers should look to conduct a risk assessment for their employees at an appropriate time. As in-person assessments are not possible in the current environment, employers should consider sending surveys to their employees so that they can do all they can to ensure employees are working safely. Doing something and recording it is better than doing nothing at all in this respect.
- IT and property – employees now have access to confidential information and even IP in their own homes. Employers should try to be diligent and retain control over these aspects as much as possible. For example, introducing provisions into employment contracts that allow employers to enter employees' dwellings might be considered appropriate in certain circumstances where highly sensitive material is likely to be held in an employee's home.
- Monitoring –Employers should be open and transparent about their monitoring activities rather than trying to 'spy' on employees. There are some limited cases where employees can monitor activities without employee awareness, but these tend to be confined to particularly serious issues relating to tax investigations or fraud.
- Thinking ahead, employers should consider flexible working requests on an open basis – there is a formal statutory process for making requests and employers may want to encourage employees to use this process in order to ensure they keep a consistent approach to requests.
What has working online meant from a tech perspective?
- There has been an enormous strain on existing IT systems with IT departments being the unsung heroes of the pandemic. For the first time, we have seen computing power available per dollar go down rather than up as demand for computing power and resource has skyrocketed. COVID-19 has brought to the forefront issues that have been on the radar for quite some time – being able to make agile communications and working decisions, being more data driven and optimising existing systems.
How might the tech we see continue to change the way we work?
- The questions that we ask of our tech will and have become more mature. For example, the shift towards working from home will bring our focus and attention to maintaining standards of efficiency and our ability to reinforce core values. Objective justifications will need to fit within our regulatory frameworks (data protection, discrimination etc.) and the area of cyber security has never been of greater importance.
- All changes that we have seen are here to stay and it is important to be able to anticipate and take steps to prepare for our increasingly digital future.
Is there anything that companies and employees should be keeping an eye out for in the future in respect of tax reporting?
- Now is the time to take stock and think about the future – relevant jurisdictional planning will be key. Companies should be mindful of the employee/consultant distinction as individuals begin to work more flexibly and wish to be more independent in how they define their working roles.
Putting COVID-19 to one side, what are the key changes for employers and employees that both should be aware of?
- The IR35 legislation, which was due to come into force in April 2020 was postponed until next year (i.e. April 2021). To summarise, this legislation will apply if you engage a consultant through a personal service company. The legislation will have an impact on the tax exposure and administration involved when individuals are hired in this way. Companies who engage consultants in this way should start thinking about their current arrangements here to get ahead of the curve.
- There is an increased move to the use of pay data to correct workplace imbalances. We currently have gender pay reporting but in the future we expect there could be a move towards pay reporting to reflect differences in pay for those from different social backgrounds, ethnicities or those with disabilities.