-Changes to the rules on temporary postings from the home State to other States (e.g. from the UK to Iceland or vice versa);
-Changes to the rules for individuals who undertake activities in two or more States (e.g. in both the UK and Iceland); and,
-Employers previously outside the scope of UK NI now potentially have obligations to pay UK NI.
Background to the Change – EU Regulations
On the 1 May 2010 new EU Regulations were introduced to coordinate Member States social security systems to accommodate the EU’s increasingly mobile workforce.
These new rules did not originally apply to Switzerland or Norway, Iceland and Liechtenstein; they continued to be dealt with under the old rules which were introduced in the 1970s. From the 1 April 2012 the new rules were extended to Switzerland and from 1 June 2012, to the remaining three countries.
What do the Regulations do?
The purpose of the Regulations is to determine which State’s Social Security (“SS”) rules apply. The basic principle (in both the old and new rules) is that an individual is subject to the SS legislation of the State in which he is employed and pays contributions only to that State. This however was subject to exceptions, the most notable of which were for:
-Temporary postings to another Member State;
-Activities in two or more States;
-Aircrew and Mariners.
Employees – What is the impact of moving to the new rules?
The main changes can be summarised as follows:
1. Temporary postings – Under the old rules a worker posted to another State would continue to pay contributions in his home State only if the posting was for 12 months or less. This is now extended to 24 months under the new rules.
2. Activities in two or more States – The old rules to determine which country could collect SS contributions were complex. Under the new rules, the legislation of the Member State where the person resides applies if they undertake a substantial part of their duties in that State. If they do not undertake a substantial part of their duties there, then the legislation of the State where the place of business of their employer is situated applies. HMRC’s guidance is that substantial in this case means 25%.
Employers – What is the impact of moving to the new rules?
Employers pay UK NI if their employees are subject to UK NI. Under the old rules this was only enforced on employers who were present, resident or had a place of business in the UK. With the new rules however, an employer with an employee subject to UK NI must comply with their UK NI obligations. This is an important change of which employers should be aware.
MDA is a boutique firm of Chartered Tax Advisers with offices in London and St Peter Port, Guernsey. The firm was established in 2007 to focus on the tax implications in consequence of the movement of individuals and their capital across borders. We provide a full range of services to clients from preparing tax returns to providing solutions to complex tax problems. We advise both inbound and outbound secondees on their tax obligations and more importantly, on how to avoid the common and expensive pitfalls inherent in encountering a new tax system.
Should you have any queries concerning the points mentioned above or would like to discuss any other aspect, please do not hesitate to contact us for specific advice.
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This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.