One of the biggest problems for expats taking overseas posts is matching tax and benefits with a comparable job back home.
The decision is whether staying at home is more profitable than taking a job abroad comes down to tax and foreign exchange calculations.
So how do expats work this out?
HR experts call the stay at home tax ‘hypotax’ – the hypo stands for hypothetical.
It’s a step process, but not that difficult to work out once you know the ropes – and then the template serves as a good comparison indicator for working out what you’re making back in Britain and overseas.
The hypotax calculation
- Step 1 – Work out your income
Include your expected expat salary, any guaranteed bonus payments but not including benefits like housing
- Step 2 – Work out the overseas tax on the salary
- Step 3 – Subtract the overseas tax from the salary to give your take home pay
Now work out the comparison figures
- Step 4 – Work out your UK tax on the salary. You can find the current income tax rates and personal allowances here
- Step 5 – Subtract the UK tax from the salary to give a UK equivalent take home salary
The principle of hypotax is to balance salaries and tax paid so they are the same for a post in the home country and the overseas assignment, which is why benefits are not included, as they are unlikely to be part of a UK remuneration package.
Knowing your financial worth
Different companies will work pout this tax in different ways, so if a prospective employer is offering a salary, ask for their calculation and make sure a breakdown of the figures is included.
Expats need to know their worth on the job market and to understand that they are not penalised financially for taking a job overseas when they could have earned the same or more at home.
“The aim is to ensure the employee pays roughly the same amount of tax on assignment as they would have paid if they stayed at home,” said a spokesman for ECA Consultants, a expat salary and benefits consultancy.
“Hypotax is not laid down in law but is a useful indicator for companies and expat employees.”
