Business groups call for urgent reform of cross-border tax rules affecting workers

Published with the kind permission of the Business Post

Business groups are calling on the Irish and UK governments to urgently reform the complex tax rules facing cross-border firms after years of inaction, writes Dominic McGrath.

Both large and small firms face a range of difficult administrative issues in hiring workers from the other side of the border, with Irish companies in some cases avoiding hiring workers based in Northern Ireland to avoid the complexity of navigating domestic and UK tax requirements.

Under current tax rules, firms can be required to operate dual payrolls while also navigating the risks around “permanent establishment”, which can arise when employees are working on a remote or hybrid basis across the border.

It also can require employees to complete a tax return, despite being a PAYE worker.

There are also gaps in the agreements between the two jurisdictions, according to specialists. Cross-border workers, living in the republic but working in the North, can avail of a relief scheme to avoid paying additional tax, but there is no reciprocal HMRC scheme.

Concerns are also not only focused on tax, but on pensions, healthcare and welfare that can often see Irish or Northern Irish employers unsure of their obligations under UK or Irish law.

Many also point to the distinct lack of a single source of information or guidance for workers or employers, making navigating cross-border tax and workplace obligations a highly difficult exercise.

Revenue officials have been in talks with HMRC for several months, after the two governments committed in March to updating the double taxation convention between Ireland and Britain.

Business groups and tax experts told the Business Post that the 50-year-old agreement, which has been sporadically updated since 1976, is no longer fit for purpose and in danger of hampering a €17 billion all-island economy that has been growing steadily since Brexit a decade ago.

This week lobby groups Ibec and the CBI jointly called for the issue to be top of the agenda, as Andy Burnham took office in Downing Street.

Cross-border working is only expected to increase in the coming years, with around 18,000 people working between Northern Ireland and the Republic on a regular basis.

“1970s principles are therefore currently being used for 21st-century working patterns,” said Leontia Doran, UK tax manager with Chartered Accountants Ireland.

Anthony Soares, director of the Centre for Cross Border Cooperation, said taxation was simply part of a “larger jigsaw puzzle”.

“Very often regulations are developed and there is no real attention paid to those involved in cross-border mobility. They fall through the cracks, basically, and information is not made immediately apparent.”

There is also the fact that the bureaucratic complexities are such that many firms are simply unable to grapple with it in-house.

Doran said that there was also the strange fact that the burden is “disproportionate to the incremental taxes raised, which anecdotal evidence tell us are often minimal, if they arise at all”.

A spokeswoman for the Department of Finance told the Business Post: “Since March, discussions have commenced between the Revenue Commissioners and HMRC in relation to this matter and the UK/Ireland Double Tax Agreement more generally and it is hoped that swift progress can be made.

Brian Donaldson, the chief executive of the Maxol Group, asked: “How can we have clear rules in terms of simplifying the tax arrangements?“

“That would make life a lot easier for businesses who are trying to make economies of scale.”

This was echoed by Stephen McKeown, the managing director at Allstate NI, which has a major base in Derry.

“We want to hire and retain the best possible talent, regardless what side of the border people live on,” McKeown said.

“During Covid, there was a temporary exemption put in place. I don’t think that disadvantaged the region,” he said. “That suggests to me that there is a solution.”