As businesses grow and expand into the UK it is quite common to send employees into the UK to oversee the expansion. There are various strategies to ensure that employees coming to the UK can do so tax efficiently.

Detached duty relief

An assignment to the UK may be a short term secondment. The UK allows those on short term assignments to receive certain benefits free of tax. If correctly structured the assignment can permit the individual to receive accommodation without a tax charge and permit flights back to their home country, for them and their family, to be provided free of tax. These make the UK an attractive destination for internationally mobile workers. The social security consequences of the secondment should not be overlooked and will be subject to separate considerations.

Dual contracts

If the individual is to be in the UK for a longer period of time then a split contract arrangement may be appropriate. These are suitable if the duties performed by the individual can be clearly separated between those undertaken in the UK for the benefit of the UK business and those the individual may undertake in other countries for other parts of the international group. Due to certain legislation it is only the UK element of the employment which will be taxed in the UK. Split contracts are a well understood technique which need appropriate circumstances to implement. To be effective they need to be correctly documented and have on-going recording obligations. As with secondment planning we have a number of clients who use this opportunity.

Tax equalisation

Tax equalisation is becoming more popular in the international market. Equalisation seeks to promote mobility amongst the staff by ensuring that they are not disadvantaged by going to another country whose tax rate may be higher than that of the home state. At a basic level equalisation ensures that the post-tax salary of the employee remains unchanged irrespective of the country in which they operate. There are variations on this theme. For example, one way tax equalisation (sometime known as tax protection) is for the sole benefit of the employee. If the tax rate in the overseas country is less than that of the home state, the employee keeps the benefit of the differential whilst the employee is protected should the overseas tax rates be higher than that of the home state.

Cost of living equalisation

Tax is only one aspect of the costs incurred by internationally mobile workers. Different countries have different cost of living and different governments provide different services to their residents. This is leading to the developing concept of cost of living equalisation. This form of equalisation looks at the total cost of living in a country compared to that of the home state and seeks to equalise the two. For example, state sponsored health care is free in the UK whilst some countries require the individual to take out a mandatory insurance plan. Moving to the UK would negate the costs of the insurance plan and therefore the cost of living in the UK would be different from that of another country. Conversely property rental in the UK is higher than many other parts of the world. Cost of living equalisation attempts to take account of these variations.