Hybrid and distance working: tax implications

4th January 2023

The Office of Tax Simplification (OTS) has issued its most recent and last ever report, ‘Hybrid and distance working: exploring the tax implications of changing working practices’. The main findings include a need for better guidance on existing reliefs and rules, plus a demand for a review of tax reliefs in this area.

What is in the report?

The report does not consider traditional permanent ‘home-based’ employees or international (expatriate) arrangements. However, it does provide a high-level review of:

  • The current extent of hybrid and distance home-working, and whether there will be increases in this trend.
  • Whether we will see current and future working practices involve more cross-border working.
  • Whether changes in working practices will give rise to any complex tax issues or challenges for the employee and/or employer.

How can the UK workforce be supported?

The following provides a summary of the areas which need to be considered to help support the UK workforce:

  • A review and simplification of the benefits and expenses legislation, in particular to permanent and temporary workplace legislations.
  • Many of the traditional ways of working are not compatible with hybrid-working arrangements, so more guidance is required. This is especially true as the 40% test may no longer be considered appropriate and 24 months is too short to incentivise employee mobility.
  • There is less concern about individual tax residence owing to the comprehensive network of tax treaties, which the UK has negotiated with many countries, plus the rules within the statutory residence test.
  • However, there is a call to increase the network of Social Security agreements.
  • There should also be changes to the rules connected with employees working abroad for short periods, for example between 10-30 days.

Concerns were also raised concerning the UK’s position on issues such as permanent establishment, where there has been a call for greater clarity with the need for reduced administrative burden.

Whilst the report includes a lengthy ‘wish-list’, it provides a good summary of the issues which businesses need to consider as part of developing a hybrid-working policy. Some of the recommended changes can be considered solely by the UK Government, and some will need greater international co-operation, especially if there is going to be an increase in Social Security agreements.

If any employer is looking at establishing a hybrid-working policy, then please contact Nick Bustin, Director of Employment Tax, or a member of the Employment Taxes team to discuss matters further.


Nick Bustin

Employment Tax Director
+44 20 7969 5578
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