Policy paper

OTS report on hybrid and distance working

A report on the tax complexities driven by hybrid working, including for periods where employees choose to work overseas.

• From: Office of Tax Simplification
• Published: 20 December 2022

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Hybrid and distance working report: exploring the tax implications of changing working practices

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Hybrid and distance working report: exploring the tax implications of changing working practices

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Details

You don’t need to look far for evidence of the seismic change in working from home in the UK and other countries around the world. People have come to expect more flexible working conditions, and businesses recognise that to retain and attract employees they need to offer that flexibility.

In this report the Office of Tax Simplification (OTS) talked to a wide range of businesses and others to consider the challenges and complexities that have arisen for employers and employees following the changes in working practices in the wake of the pandemic. ONS surveys suggest that about 40% of the workforce is able to work from home and the evidence is that many are splitting their working time between home and office-based working.

Key findings

• Businesses see hybrid working as here to stay and are planning accordingly – although many suggested that the approach to different ways of working will continue to develop
• Offering employees the ability to work some of the time at home in the UK is almost universal amongst those the OTS heard from
• Employers call for a review of the expense and benefits systems, where many concepts are tied to more traditional ways of working. Adding additional tax reliefs would have a significant exchequer cost – but new ways of working present the opportunity to reconsider the approach to employee tax reliefs
• As well as the government considering policy change, respondents asked for HMRC to improve guidance to help both employers and employees; at present there is limited guidance on hybrid working
• Working abroad for short periods is not taken up by many employees, but still seen by many employers as a crucial business policy to attract and retain staff. Businesses are also permitting a small number of individuals to live and work overseas on a long term basis whilst the benefit of their services is mainly received in a different country
• The social security and payroll implications of cross-border working are already complex, and these and the UK’s position on issues such as taxable presence for the business (permanent establishment) were seen by businesses as unclear where the staff are the ones choosing to work overseas for short periods
• On both cross-border payroll and social security issues businesses want to see improved HMRC processes, turnaround times, more PAYE relaxations and better guidance​
• Multinational businesses want to see the UK taking a lead on how permanent establishment and transfer pricing interact with staff who choose to work overseas on for personal reasons and longer term, and where possible, businesses would like the UK to set out unilateral guidelines that can be clearly understood

Notes for editors

• This is an own initiative report by the Office of Tax Simplification (OTS) reflecting the responses to the OTS’s Call for Evidence and survey
• The Call for Evidence generated a huge amount of interest even at early stages, and the report reflects feedback from thirty-nine meetings (many with large groups), and fifty written responses. The survey was completed by 425 respondents, mainly employees, despite running this consultation for only two months rather than the usual three.
• The abbreviated time for the work has meant that the OTS has not included its own recommendations but rather reflected calls from business and other for change and improvements.  The OTS did not receive enough evidence to make any comments on hybrid working by self-employed individuals.
• The OTS is the independent adviser to government on simplifying the UK tax system. The OTS makes recommendations for the government to consider. It does not implement changes; that is a matter for officials and ministers.
• The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden, which is what people encounter in practice, as well as looking to simplify the rules. Simplification of the technical and administrative aspects of tax are important, both to taxpayers and to HMRC.
• The government announced on 23 September as part of The Growth Plan 2022 fiscal event that the Office of Tax Simplification will be closed.
• As the Office of Tax Simplification is a statutory body, the formal closure will take effect when the Spring Finance Bill 2023 receives Royal Assent.
• This is the OTS’s final report and the OTS will not undertake any further work after the end of the calendar year.

Please direct press enquiries to the Treasury Press Office 020 7270 5238.

Published 20 December 2022