'Local investment and working practices hindered by cross-border tax disparities'

Taxation issues facing cross-border workers are continuing to impact the many people who travel in and out of Derry and Donegal, between their workplace and home each day.

Julie Hamilton, Tax Manager at Baker Tilly Mooney Moore, said the pandemic had "put a spotlight on the taxation issues facing cross-border workers".

Ms Hamilton said: "When the world moved to working from home, cross-border workers found they were liable for double taxation and a host of other complicated obligations just for working from their spare room or kitchen table like their colleagues.

"Three years on, the hybrid model remains as one of the lasting impacts of the pandemic, and so the problem has not gone away. Now, it makes it harder for local businesses who genuinely want to offer a flexible working approach to do so, and does nothing to attract investment into the North West.

"Businesses in the area are seeking to lay new foundations for growth and take advantage of dual market access to the UK and EU following years of uncertainty over Brexit, but the realities of operating a payroll in two different jurisdictions with varying tax reliefs and completely different tax years is seen as far from ideal. 

"Under current tax policy, an employee working in Northern Ireland for an Irish company or vice versa can be taxed in both states," she said.

According to Julie Hamilton, Transborder workers’ relief mitigates this in part for Republic of Ireland residents working and paying tax in the North.

She added: "But [this is] only if the work is carried out outside of the individual’s home country (for example in Northern Ireland), meaning it is not available if they work from home in the Republic of Ireland.

"In addition, a business which has employees working in another country needs to consider whether the overseas employees could have created a 'Permanent Establishment' abroad, which would lead to additional tax liabilities for the employer.

"Then you have the questions over where the individual pays social security, how their pension contributions are operated, and in which jurisdiction do they qualify for maternity pay or sick pay? Combined, these unanswered questions mean that in reality, being a flexible and accommodating employer and remaining competitive in today’s recruitment climate is not that easy at all, and neither is sending an employee to work overseas for even six months.

"That said, modified payroll systems that operate across the two jurisdictions and consider their varying tax reliefs are available. Once established, they can automate double tax payroll and can be customised for companies with foreign tax obligations too. This is a solution that will work for some businesses, if put into practice with the support of a tax professional," said Julie Hamilton.

The Tax Manager added: "What remains, however, is the mismatch over pensions and employee benefits, which is unlikely to be settled in the absence of mutual cross-border tax agreements with Ireland. Detracting also from any incentives or grants available to foreign businesses hoping to set up in the area, it is also serving as an obstacle to investment.

"To make this place more agile and receptive to investment, there is a need for alignment on cross-border worker taxation."