TENS of thousands of Scots working across Europe when Britain leaves the bloc are at risk of paying tax twice, a leading industry body has warned.
The Chartered Institute of Taxation (CIOT) said Article 50 threw up the possibility of workers being forced to make National Insurance contributions in both their home state and the country where they work.
Current EU regulations on the co-ordination of social security systems between EU states and European Economic Area (EEA) prevent workers and businesses paying contributions in more than one country.
But, based on a total EU withdrawal, CIOT said Scottish businesses and taxpayers could “face a range of additional financial burdens in the form of increased trading and labour costs”.
At present there are about 2.9 million EU nationals in the UK, the majority of whom work and pay some sort of taxes. Estimates put the number of UK citizens resident elsewhere within the EU at 1.2 million: the majority in Spain, followed by the Irish Republic, France, Germany and then Italy.
As well as rules harmonising social security systems, there are also mechanisms for regulating benefits. But CIOT warns this will no longer apply to UK nationals working in the EU or EU nationals working in the UK.
Responding to a Holyrood inquiry on the economic impact of leaving the EU, CIOT said the UK only had a limited number of bilateral social security treaties which, it adds, “are uneven in their scope and effect”. It states: “Withdrawal from the EU will increase the exposure to double contributions of UK workers who spend time working in the EU and/or to a less favourable effective benefit record being built up in the case of mobile workers. The lack of a single unified regime will likely increase compliance costs for UK employers.
“This will make UK nationals and residents more exposed in the remaining EU member states to the risks of discriminatory taxation faced by other third country citizens and nationals.
“The UK and Scottish parliaments will similarly be free to impose discriminatory taxes on EU residents and nationals, subject to limitations negotiated into double tax treaties and any other relevant agreements. For example, more restrictions could be placed on the availability of UK personal allowances.”
Richard Britten is a partner at leading accountancy firm Johnston Carmichael.
A specialist in employer-employee relations, tax and compliance, he has an expertise on the implications of the international movement of staff.
He said: “Yes, there are potential situations where we can contemplate double social security payments for both staff and their employers when moving from one country to the next after Brexit.
“What my radar is asking me to be alert to is the possibility that we are going to default on the domestic legislation of the host nation, which could leave businesses and employees liable for payments in both that host nation and the UK. For at least 52 weeks anyhow.
“It could be said that this isn’t until two years away, but many of the arrangements that businesses with a mobile workforce, be that in finance, technology or oil and gas, have in place extend beyond two years and they need to have an eye on the future.”
Moira Kelly, chairwoman of the CIOT Scotland technical committee, said: “Over the coming months, businesses and individual taxpayers will be looking to the UK Government to provide them with clarity on what leaving the EU will mean for them. In that context, it is disappointing that, nearly five months on from the referendum, we are no further forward in understanding what the practical implications will be.
“The UK government needs to act quickly to spell out the implications of Brexit to allow companies to plan for the future.”
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