Remote work overseas: the tax risks for UK employers in 2026

“Work from anywhere” has moved from a pandemic concession to a common employment benefit. For many UK employers, allowing staff to spend a month in Lisbon or work from a family home in Germany feels like a harmless perk. Remote work overseas is a seemingly low-cost and it can result in high goodwill.

Sadly, tax authorities have a different view. HMRC, EU revenue agencies and the OECD are all paying closer attention to cross-border working arrangements, sharing data more systematically than at any point before. The question is no longer whether an employee working abroad creates tax risk. It is whether you have assessed it, documented it and built a policy to manage it.

This guide explains what updated OECD guidance means for UK businesses, where the hidden payroll traps sit, and what a compliant remote working overseas policy should contain.

Does an individual’s home office abroad create a tax presence?

In November 2025, the OECD published a substantial update to its Model Tax Convention – the framework that underpins most bilateral tax treaties, including those to which the UK is party. This was the first comprehensive revision since 2017.

The update introduces new, detailed guidance on Permanent Establishment (PE) risk in cross-border remote working situations. A PE is the tax concept that determines whether a company has sufficient presence in another country to owe that country’s corporate tax – and to face registration, compliance and reporting obligations there.

The OECD’s updated commentary to Article 5 introduces new guidance on when a home or other relevant place abroad may be treated as a place of business of the enterprise.

The 50% working time benchmark. In this context, the commentary says that a home or other relevant place abroad would generally not be treated as a place of business of the enterprise if the individual works there for less than 50% of their total working time for that enterprise over a relevant 12-month period. Below that level, the risk will often be lower – provided the arrangement is properly documented.

Commercial reason and wider facts. If that 50% threshold is met or exceeded, the analysis does not stop there. The position remains fact-specific, and tax authorities will look closely at whether there is a commercial reason for the enterprise to operate from that location.

Intent matters!

This is where intent matters. If your employee has relocated temporarily to be closer to family, or is working from a holiday home for a few weeks, that is less likely – on its own – to trigger a PE. This is because the reason for the arrangement is personal convenience, not business expansion. On the other hand, if you send an employee abroad specifically to serve local clients, develop a new market, or oversee regional operations, then this will present a much higher risk. In these cases, the company’s activities in that country are commercially purposeful, and a PE is more likely to apply.

Note: The OECD guidance is not legally binding, and many countries interpret or apply it differently. The UK follows the OECD model closely, but when any specific country is involved, local tax advice is essential.

The hidden payroll trap: obligations can arise without a PE

Many employers assume that if they have assessed the PE risk and are comfortable it does not apply, the matter is closed. It is not.

Payroll and social security obligations can arise in a foreign country, regardless of whether a corporate PE exists. Even a short-term working arrangement can trigger a requirement to register locally, withhold income tax on the employee’s earnings, and contribute to the host country’s social insurance scheme.

Currently, UK employers pay employers’ National Insurance at 15% on earnings above £5,000. This is already a significant overhead. In some countries, equivalent employer social security costs can be materially higher than UK employer NIC.

As a result, a well-intentioned remote working arrangement – which does not create a PE, does not necessarily shift the employee’s tax residency, and causes no obvious problem – still results in a payroll compliance obligation in another country.

The key variables are:

• The specific country involved
• The applicable double tax treaty
• Any relevant social security agreement between the UK and that country
• The duration and nature of the employee’s work there.

In the absence of a bilateral social security agreement (the UK has these with many, but not all, countries), UK employers’ NI and foreign social insurance costs can apply simultaneously.

For the 2026/27 NI thresholds and rates, see the HMRC Rates and Thresholds guidance.

Creating a robust remote working overseas policy

The most common approach to remote working among UK SMEs is informal. Staff ask, managers agree, and nothing is documented. This can leave the employer exposed on multiple fronts – to HMRC, to foreign tax authorities, and to data-security and data-protection risk if employees handle personal or commercially sensitive data overseas without appropriate safeguards.

A formal remote working overseas policy does not need to be lengthy. But it does need to exist and be applied consistently. The following elements are non-negotiable.

1. Mandatory pre-approval.

No member of staff should be working internationally without explicit, documented sign-off. The request and approval process should capture the destination, the proposed dates, the nature of the work and confirmation that the employee has read and understood the policy. This creates an audit trail that demonstrates the employer took the arrangement seriously.

2. Duration limits.

Many UK SMEs are now setting a ceiling of 30 to 90 days per 12-month period for overseas remote working. This is not arbitrary – it is designed to keep most arrangements well below the OECD’s 50% working-time benchmark and to act as a practical internal risk limit. It should not be treated as a guarantee against residence, payroll or PE issues, which remain country- and fact-specific.

3. Country-specific awareness.

Not all overseas arrangements carry the same risk. Sending an employee to work from an EU member state for three weeks involves different considerations from a temporary relocation to the US, Australia or a country with no bilateral treaty with the UK. Your policy should require that country-specific advice is obtained for extended arrangements or for destinations that are not on a pre-approved, low-risk list.

4. Equipment and data security.

Public and domestic Wi-Fi networks in other countries often lack the security standards your business applies at home. GDPR obligations travel with your data. If an employee accesses client records, personal data or sensitive commercial information abroad, the responsibility remains yours. Your policy should therefore set minimum technical requirements for secure remote access, such as VPN use and device encryption, and impose restrictions on accessing certain categories of data while abroad.

5. Tax and payroll obligations.

The policy should explicitly state that it is the employer’s responsibility – not the employee’s – to assess and meet any tax or payroll obligations arising from overseas work. Employees should not be left to manage this alone, and the policy should set out the internal process for escalating arrangements that may trigger foreign obligations.

Why you need specialist advice about remote work overseas

One distinction often catches employers off guard. This is the fact that the company’s tax position and the individual employee’s tax position are entirely separate questions.

An employee working abroad may or may not remain UK tax resident under the UK Statutory Residence Test and the relevant double tax treaty. In some cases, their UK income tax position may change materially. But whatever the employee’s personal tax position, the employer may still face separate PE, payroll withholding or social security obligations overseas.

This is the territory where generic HR advice and informal arrangements consistently fail. The employer liability – potentially running to several years of foreign payroll tax, interest and penalties – can dwarf the goodwill value of the original arrangement.

If you would like any advice on the tax implications of remote work overseas, please get in touch today. One of our friendly, expert accountants would be delighted to help you.