Remote working could create a tax crisis

The shift to working from home could cost the UK up to £32bn per year in lost personal income tax, researchers have warned. 

An estimated 31% of UK jobs can be carried out remotely, some of which will be internationally mobile.

If highly paid workers live abroad but work in the UK they will then pay their income tax in their country of residence, rather than HMRC.

Assuming only higher and additional rate taxpayers are internationally mobile, the researchers have said that the potential loss in income tax would be between 2% and 10% of the total revenue – between £3.8bn and £19bn a year.

The researchers have highlighted that global tax discussions have focused on solving challenges to corporation tax posed by digitalisation, but that the shift to remote-working could pose an even bigger crisis.

Professor de la Feria, chair in Tax Law at the University of Leeds School of Law said: ‘The acceleration of digitalisation and the spread of remote working internationally as a result of the pandemic poses very significant challenges to personal income taxes.

‘New mobile workers are likely to be at top of the income distribution, and even a small number could result in significant revenue losses to the UK, of between £6bn and £32bn.

‘The likely effect will be a tightening of employment rules, introduction of new tax avoidance rules, and increased personal income taxes competition with countries fighting to attract new mobile workers.

‘The impact of these labour changes is likely to be more significant in countries such as the UK, which relies heavily on income tax, especially from a small number of high-income – and now potentially mobile – taxpayers.

‘How big these challenges are, and how countries will react to them, will be a key issue in the coming years.’

‘This crisis has the potential for much wider economic and societal ramifications than the challenges to corporation tax. The challenges of adapting our tax systems to a digital economy are far from over; indeed, they have just started.’

Photo by Mufid Majnun