Income and Insurance Tax - the implications for your organisation
With the rules around regulation and tariff requirements ever shifting, it can be hard to keep track of what your organisation needs to do to remain compliant with tax regimes. 2017 is likely to herald further changes, so if your organisation operates globally now is the time to make sure you understand the implications.
Carrying out operations internationally is already complex enough and there are a number of areas which will see increased regulation in 2017. As a global organisation, your concerns may extend to more than just regulation. You will also need a firm understanding of tax rulings both in the UK and overseas as incorrect tax payment could result in a heavy fine, not to mention the reputational issues it creates locally.
Tackling tax in the UK
Before grappling with overseas taxation, it is important to understand the key aspects of having employees located inside and outside of the UK. Since 2015, it has been a legal requirement for all recruiters moving staff across borders to report those who are not paid through Pay As You Earn (commonly known as PAYE) but who are required to pay tax in the UK to Her Majesty’s Revenue and Customs (HMRC). This extends to UK nationals temporarily placed abroad.
Failing to do so could result in a penalty of £1,000 plus any underpaid tax and National Insurance Contributions (NICs). And with Brexit on the horizon, there is a huge amount of uncertainty being generated around HMRC reporting requirements.
Learning the rules about regulation
Unfortunately regulation can be equally as complicated overseas, despite increasing globalisation there is no such thing as a “one-size-fits-all” approach. You need to be aware of country-specific laws.
Are you savvy about sanctions?
You should take a similar approach with sanctions, as sanctions may not just apply to individuals, they may also have an effect on your organisation – including customers and individual territories. For example, without a local policy you could find yourself taxed for any transfers you make from your main bank account to the local. You could avoid this by introducing a clause to your policy which exempts these payments from tax. Further to this, with the EU General Data Protection Regulation due to be introduced next year, any organisation recruiting in the US will have to be aware of the impact that this could have on the US/EU Safe Harbour agreement.
Insurance Premium Tax and multinationals
Insurance Premium Tax is one of the thorniest issues for multinationals. In the UK, an additional increase to IPT took place on 1st June 2017 which increased the standard rate to 12%. This is the third increase in two years. To coincide with this, the Government has also begun to crack down on compliance from insurers. This isn’t a UK specific issue either, with increases taking place throughout Europe. These fluctuating rates create further complexity and a need for a clear compliance procedure.
If your organisation operates across multiple jurisdictions, it can be extremely time consuming and difficult to remain compliant with numerous local requirements. Your organisation will have to find the time to register, collect and pay European or international IPT in each area where you operate1.
Not only must organisations contend with the variety of taxes that exist across the world – Insurance Premium Tax, Stamp Duty and Retail Sales Tax to name but three, they must also keep up-to-date with changes to the rates that are applied from time to time.
It is therefore advisable to check at each renewal for changes that might have been introduced during the preceding period – be there just one country involved or many.
Whether the insurer(s) involved are licenced or not in the territories concerned adds further complexity and can affect “who pays who” and can even affect whether taxes are chargeable at all.
You must therefore take great care to understand the details of the global scope of entities seeking insurance not only to ensure suitable insurance coverage but also to comply with the variety of additional charges that can apply.
The TMF software used by Arthur J. Gallagher London Tech Ops has the required expertise to ensure the correct Tax Schedule data is created with access restricted to trained individuals. The team meets regularly with TMF to make sure we stay up-to-date with this challenging subject.
Don’t fall for common tax misconceptions
Effective overseas trading isn’t just about getting to grips with IPT, it also extends to local employment taxes. There is no grace period for companies or employees paying tax when placed overseas, so compliance should take place immediately. Employees placed in a UK company from overseas will still have to contribute tax through PAYE and many foreign countries will have similar reciprocal tax agreements which are carried out via payroll. You should take time to ensure you are compliant with each country’s process for paying National Insurance or other employment taxes.
So what can you do to stay ahead?
With all these different regulations, sanctions and taxations to navigate, it seems that the idea of free movement is a fallacy. The desire for countries to protect their own prospects might even discourage organisations from setting up business abroad.
This problem is not going to go away either. According to a 2014 study2 by PwC, the mobility levels of worldwide talent has increased by 25% in the last decade and is expected to increase by a further 50% by 20203.
It seems organisations may have little choice but to accept that these complications are an unavoidable, albeit arduous, part of their operations. Negotiating this minefield doesn’t have to be needlessly difficult however, having clear processes which meet compliance requirements in the countries you are operating in is the key to success.
Arthur J. Gallagher: our conclusions
Regulations, sanctions and tax - it can seem daunting at times. Organisations could feel overwhelmed as they try to find a happy medium between taxation, regulatory compliance and the freedom to operate globally.
With further change on the horizon, now is the time to develop and implement a strategy for handling existing issues with overseas governance. Once this is done, you can begin to be ready for future changes. Brexit will not exempt the UK from the EU General Data Protection Regulation and the US will be expected to comply too. Setting up an in-house compliance team may be one way to ensure you comply with ever changing regulation, but a transparent, straightforward process for placing employees can also help mitigate this complexity. It may also be advisable to outsource this risk to a specialist, or to appoint someone who will liaise with professional advisors on your behalf.
Want to know more?
For more information about global tax implications, call us on 0800 612 2278 or email us at email@example.com.