TAX NEWS - June 2010

United Kingdom Tax: International Social Security - New EU social security legislation for internationally mobile employees

Basics – key changes

On 1 May 2010 new EU social security legislation will come in to force.

- Short-term assignments – an employee assigned from one EU state to another for a period of up to 2 years (previously up to 1 year) is required to remain insured in their home country.

- Multi-state workers – previously, a person working partly in the country in which he/she is habitually resident paid contributions in that country. Under the new rules such an individual has to 'pursue a substantial part of his activity' (at least 25% of work time and/or remuneration) in the home country for this to apply. This will affect U.K. employees who may be based in another EU country and spend only a small amount of time working in the U.K., and other multi-state employees who are employed by companies based in a country other than that in which they normally live.

- Long term assignments – despite the new rules, H M Revenue & Customs (HMRC) has confirmed that for the time being, they will continue to issue certificates for up to 5 years where it is in the individual's best interests to do so.

- Previously, in certain circumstances, individuals employed in one state and self-employed in another would pay contributions in both states. Under the new rules they will only pay where they are employed.

- Authorities in different states will help each other collect unpaid contributions from employers who do not have a presence in the state where the contributions are payable.

- From 1 May, where an employee is paying U.K. NIC, employer's NIC will also be payable even if the employer has no place of business in the U.K.

- The new rules for the self-employed are broadly the same as those for employees.


Exceptions

- For third country nationals, HMRC has advised that the U.K. will continue to use the old rules.

- Employees who already have an E101 certificate on 1 May can continue to use this until it expires. However, all other rules contained in the new legislation will have immediate effect from 1 May 2010 i.e. an EU but non-U.K. employer with no place of business in the U.K. is required to assume all the NIC responsibilities of a U.K. company, that is:
     - Register with HMRC as a payer of National Insurance Contributions (NIC),
     - Pay over secondary (employer's) NIC, and
     - Operate employer-delivered benefits such as Statutory Sick Pay, Statutory Maternity Pay and Statutory Paternity Pay.

HMRC had previously suggested that if an E101 issued under the old rules was still valid and in use on or after 1 May 2010, then the new rules would not apply in their entirety. In short, a non-U.K. employer would not be given the responsibilities of a U.K. employer to pay employer's share of NIC and operate employer provided benefits until that E101 expired. Deloitte has been in correspondence with both HMRC and the European Commission about obtaining a concession but, as yet, the authorities have shown no flexibility. We feel that such employers should be given some time to make the necessary adjustments.

- The EEA countries (Iceland, Liechtenstein and Norway) have not yet agreed to adopt the new rules. This may happen from 1 January 2011 (or not later than Spring 2011). The old rules (1408/71) will continue to apply.

- Switzerland has not yet adopted the new rules. The old rules (1408/71) will continue to apply.


Applications

- The E101 certificate will be replaced by a new form A1.
- From 1 May, all applications will be considered first under the new provisions.
- Employees with E101s issued under the old rules which are valid beyond 1 May can opt for the new rules to apply to them if they wish.
- Multi-state worker applications will have to be made to the authorities in the state where the individual is habitually resident.


Healthcare

- The EHIC will continue to be the appropriate healthcare insurance document for assignments up to 24 months.
- E106 and E109 forms will be replaced by form S1. As before, this will be the appropriate healthcare insurance form for longer term assignments of more than 24 months. It will also be used where a person's family lives in a different EU state to the EU state where the employee pays contributions.

There is some information on the HMRC website but, at the time of writing this bulletin, there is little detailed guidance. We suspect that applications from 1 May onwards will take longer than usual to process while employers and HMRC determine exactly what is required and rejections of applications are likely to be more common.