Many UK employers have employees working in the EU, EEA or Switzerland, and calculate the NIC due on their earnings in accordance with EU regulations. After Brexit, in the event of the UK leaving with no agreement, then these EU regulations will no longer apply to UK employers.
The terms of Brexit are currently unknown, but employers should be prepared for a no-deal Brexit and understand how this may affect their employees, as well as their obligation to deduct UK NIC.
At present, individuals covered by the EU Social Security Coordination Regulations are only subject to the social security legislation of a single member state at any particular time – so there can be no double contributions on the same income. The basic rule is that contributions are paid where work is performed (there are exceptions for individuals working outside their home country for temporary periods).
Brexit with a deal
In the event of the UK agreeing a deal with the other 27 EU member states, a transition period will come into force. A series of rules in relation to social security coordination have already been agreed for this scenario and these rules will be applicable until 31 December 2020. We would expect the UK Government to enter into discussions with the EU during this period to agree further rules which will be applicable after the transition period.
Brexit without a deal
In the event of the UK leaving without a deal on 31 October 2019, the current European coordination rules will no longer apply and neither will the transitional rules mentioned above. The UK has proposed contingency legislation which would mean that we would continue to apply the European coordination rules on social security on a stand-alone basis. This does not mean that the 27 remaining member states of the EU would agree with the UK’s approach, which could lead to scenarios where dual social security liabilities can arise.
The UK also has historical social security reciprocal agreements with the following EU/EEA states – Austria, Belgium, Croatia, Cyprus, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, Malta, the Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, and Switzerland. These agreements were in place to avoid double social security contributions liabilities arising. However, it is unclear whether the countries concerned will implement the agreements. In the event the UK leaves the EU without a withdrawal agreement, the Government has stated that it will keep these reciprocal agreements under review. Whether these come back into force will be subject to discussion and agreement between the UK and the relevant EU Member State.
There is also a consensus that many of the agreements do not adequately reflect the requirements of the modern-day workforce. The UK/France agreement, for example, only allows home country social security coverage for posted workers to continue for a period of six months, followed by a possible extension period of six months. It also only applies to UK and French nationals.
Helpfully, new social security agreements with Ireland and Switzerland have already been agreed. These will come into effect from Brexit day in the result of a “no-deal” Brexit, where there has been a failure to agree other coordination measures. The updated Swiss agreement only applies to UK nationals who started working in Switzerland before Brexit (the existing 1968 agreement applies for secondees moving after Brexit).
It is hoped that the UK will be able to negotiate more up-to-date agreements with the remaining EU countries after Brexit, as the existing ‘totalisation’ agreements offer limited benefit to secondees and their employers in the majority of circumstances.
Employees currently working overseas
If an employee with a UK-issued A1/E101 is already working in the EU, EEA or Switzerland, NIC must be paid in the UK until the form expiry date. If the end date is after Brexit day (possibly 31 October 2019), the relevant EU/EEA/Swiss authority should be contacted to determine whether social security contributions will be due in that country.
UK employers with employees currently working in the EEA should now consider whether:
- They will have additional social security contributions costs as a result of a no-deal Brexit
- They will have additional employer reporting and compliance obligations, which can also result in increased administration with the operation of payroll and ensuring social security compliance on a country by country basis.
BDO has an extensive network of social security specialists throughout the EEA. We can help you navigate these issues through:
- Undertaking a risk assessment covering your current social security costs and the impact of a no-deal Brexit.
- Providing an assessment and identifying where you will incur any additional social security costs
- Providing full assistance with the operation of payrolls, facilitation of social security contributions payments and reporting requirements in countries within the EEA
- Reviewing and advising on existing and future assignment policies
- Preparation of employee communications and frequently asked questions on the impact of the changes for employees
- Communicating with the social security authorities in each jurisdiction and advising on interpretation of the social security rules post-Brexit.
For help and advice please get in touch with your usual BDO contact or George Milmine or Karen McGrory.
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