people walking up stairs

Managing increasing UK mobility costs

Kenny Law, Senior Manager, Global Mobility Services
16/09/2021
people walking up stairs

You will have seen that the UK Government have announced a 1.25% increase in Class 1 National Insurance Contributions (NICs) for both employees and employers effective from April 2022, as set out in the below table.

Class 1 NIC Rates Employee Class 1 NICs
(Main rate / Higher rate)
Employer Class 1 NICs

Current: NICs rates for 2021/22  12% / 2%  13.80% 
New: NICs rates for 2022/23  13.25% / 3.25%  15.05% 

After 5 April 2023, these increases will take the form of a levy.

What is the impact of these changes?

These changes will raise employment costs in general and also for globally mobile and expatriate employees who typically receive guaranteed net pay / compensation (the taxes being paid by their employer). New and current globally mobile employees will cost more after 5 April 2022.

After 5 April 2022 (for employees taxable in the UK and subject to National Insurance)

  • an employee that is earning £50,000 a year net will cost £2,300+ more per year
  • an employee that is earning £100,000 a year net will cost £6,300+ more per year

The importance of cost optimisation

We have found that as vaccinations progress and border restrictions continue to loosen, more and more cross border employee mobility is taking place. Managing these mobility costs will remain key for all organisations. 

In the examples above, annual net pay of £50,000 and £100,000, results in total taxes due by the employer as follows:

Annual net compensation Taxes due by employer
£50,000  £32,000 
£100,000 £96,000 

These are significant costs but are not always fixed. With careful review and deployment structure planning, these costs can be optimised, thereby reducing overall employment costs.

We have a structured approach to tax planning as part of mobility cost optimisation that considers a number of areas including the below. Contact us to ensure your mobile employee costs are as optimised as possible.

Mobility tax concessions
Talent attraction is key to a number of major economies. Mobility tax concessions provide preferential lower tax rates and/or significant exemptions from tax. China, Spain, Italy, France, Netherlands, Russia, Sweden, Portugal, Ireland are just some examples. 
There are usually specific requirements on the type of employee who can qualify, for how long and there may be procedural rules to consider (an application has to be made by a certain date in a certain way). Early identification of these is critical.
Housing
A large part of the overall cost of a globally mobile employee. Grossed-up for taxes it is even bigger! A number of countries have the concept of a temporary workplace or dual household cost which provides exemptions from local taxation for part or all of housing related costs. 
There are tax breaks in a number of countries for accommodation based on short term assignments. UK, Germany, USA are just some examples. Where you see short term assignments, review if the housing, travel and subsistence will be exempt and under what conditions to ensure cost savings are not overlooked. 
Pensions
A key part of a globally mobile employee’s compensation. A number of countries provide ‘matching’ rules to exempt foreign pension earnings (employer contributions), if the plans broadly align with the local plans that qualify for local tax advantages. Checking how pension participation is treated locally for tax purposes should be a key step. Accessing and applying the local tax exemptions can really make a difference to the overall assignment costs.
Non-host workdays/time apportionment calculations 
A number of countries will not tax compensation relating to duties not performed in the host location, provided certain conditions are met. 
Depending on the number of non-host workdays, this can be a significant tax saving. Think about how many of your globally mobile employees do not just work solely in the host location? Examples include UK, Singapore, China, Hong Kong, France and India. This a key potential cost saving to explore when you know the employee will be working in more countries than just the proposed host location. It should be systematically reviewed to keep costs down.
Tax efficient benefits delivery
How particular compensation is delivered can change how it is taxed. Allowances generally tend to be less beneficial than reimbursements unless the allowances are paid in accordance with locally set tax-free limits. 
Some benefits in some locations can result in lower taxable values (different to the actual cost) if the employer directly pays, or contracts, for the benefit. This could apply for example to large costs like accommodation and education. It’s important to check if this applies to all the costlier benefits forming part of a globally mobile employee’s assignment package.
Travel and home leave
Travel to, and from, the host country and home can benefit from tax exemptions in a number of countries. Care needs to be taken to understand the local specifics. For example, are there time limits, limitations to the number of trips, or do they have to be reimbursed rather than paid directly by the employee or as an allowance?
Timing and type
The timing of a globally mobile work arrangement and its type – assignment, local, local plus, commuter can significantly impact the taxes costs for employers. It could be that by changing the start date of the work arrangement, or by managing the number of days in the host country that tax status of the employee can be managed in an advantageous way.
The advantages can be multi-year in impact (and not just relating to the initial year). For example, if an employee is not-resident in a country for the initial tax year (proactively managed so to be) then the tax rate in that first year could be reduced. In addition, that first may allow tax breaks that apply for subsequent tax years to start later (and therefore apply for longer and reduce cost more). 
Relocation expenses
There are often exemptions for key relocation related expenditure, shipping, temporary accommodation, replacement furnishings etc. A number of countries provide either specific reimbursement, or lump sum allowances, to provide these items are tax free or exempt. Checking the rules and then structuring the relocation support accordingly can be a good way of reducing assignment costs. 
Social security
Social security rates vary greatly around the world. Employer and employee contributions usually apply and it can be a significant cost aspect of mobility. As employees are deployed and work across borders the rules that apply can change. It could be that an employee working outside their home country removes or reduces the social security due. Not understanding when these changes occur could result in unnecessary costs. Where social security is paid can also to some extent be driven by the assignment structure that is deployed – the length, the employer etc. Proactively reviewing these aspects during the planning stage can deliver savings. 
Tax policy and process
Globally mobile employees trigger taxation that is often borne by the employer – payroll taxes and liabilities on tax returns for example. Unless good policy and process is applied the costs can’t be proactively managed or legitimately mitigated. Example: most countries provide some mechanism to prevent double taxation. If tax preparation support and process is not enabled double taxation cannot be mitigated. It can be as simple as ensuring that the payroll taxes in the host country are correctly treated on home country tax reporting and then ensuring (through the right process) that tax refunds or tax benefits are correctly returned or refunded to the employer (and not kept by the employee). In some countries, doing this in the right way may also result in lower tax rates applying for the payroll taxes due by the employer.     

Conclusion

While the new NIC rates will increase overall employment costs, there are ways to significantly reduce tax related in respect of your globally mobile staff. Proper planning is key. We are helping our clients reduce employee mobility costs every day.

If you have any questions or would like to discuss, please get in touch with a member of your Crowe team.

 

Contact us

Dinesh Jangra
Dinesh Jangra
Partner, Global Practice Leader for Global Mobility
London