Staff with a new appetite to work from home don’t want to return to the office when COVID-19 pandemic restrictions are lifted.
While bosses and employees are on a collision course over where they work when the economy finally returns to normal, the government is worried tax revenues will suffer.
Official data shows 85% of employees want to stay working from home, while the government fears many are lured by lifestyle to become expats in France or Spain, costing the Treasury up to £32 billion a year in lost income tax.
While expats still have their job in the UK, they will pay income tax abroad rather than in Britain if they become tax residents in another country.
New workforce mobility triggered by COVID-19 restrictions is likely to hit the government’s corporate tax take. For example, companies may choose to relocate overseas to take advantage of work from home (WFH) benefits.
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High earners ready to quit UK
The prediction comes from Rita de la Feria, Leeds University and Georgia Maffini, Oxford University.
They have published a paper that examines the possible impact on income tax from remote working.
“In this paper, we argue that some remote working is set to continue post-pandemic and that some of it is likely to be inter-jurisdictional. Moreover, these mobile workers are likely to be at the top of the income distribution, and thus even assuming a small number of mobile workers revenues loses can be significant,” wrote de la Feria and Maffini.
“In the UK, we estimate that the overall revenue loss – i.e. combined personal income tax and social security contribution revenues – could amount to between £6.5 billion and £32.5 billion.
“This new mobility of workers at the top of the income distribution is also likely to have a distributional impact, as well as significant spillovers in other taxes, for corporate income taxes and consumption taxes.
“These challenges are particularly problematic for personal income tax systems -like that in the UK- which are heavily reliant on personal income taxes as the total percentage of revenue, as well as on a relatively small number of high-income – and now potentially mobile – taxpayers. We conclude that the challenges of adapting our tax systems to a digital economy are far from over; indeed, they have just started.”
Third of jobs could be carried out remotely
The research reveals that two-thirds of the £187 billion income tax was paid by higher rate (35%) and additional rate (31%) taxpayers.
The paper estimates 31% of jobs can quickly be done by employers working from home – and that home could easily be in Ireland, France or Spain, which are the major expat destinations within Europe.
The report also points out that working from home has many advantages for staff and bosses.
Commuting time is much less for workers, and time inefficiencies like excessive meetings are less likely while the work-life balance is enhanced.
Companies also benefit from savings on office costs, maintenance, utility bills, and travel costs for staff. In addition, surveys around the world have concluded that productivity increases when staff work from home.
85% of employees want to work from home
“There is also substantial anecdotal evidence to indicate that not only will the shift to remote working become a sustainable trend, but also that this shift will have a fiscally significant impact on employees’ tax residence status—and thus personal income tax and social security revenues.,” wrote de la Feria and Maffini.
“Even without a specific overall policy in place, businesses are now hiring for positions which are fully remote and not subject to any territorial constraints. Moreover, even when the position is initially linked to a territory, it is now common to observe that discussions concerning location are included in the bargaining during the hiring process: potential employees are bargaining for remote working in a jurisdiction that is different from that of the employer.”
Meanwhile, data from the Office of National Statistics (ONS) confirms eight out of 10 workers would prefer a ‘hybrid’ work from home and the office model rather than returning to pre-COVID practices.
But these hopes could be dashed for millions as two in five companies want at least three-quarters of staff back in the office when Prime Minister Boris Johnson lifts COVID restrictions.
Disappointed workers are likely to find only 14% of businesses will allow half their staff to work from home.
No reason to defy come to work orders
Legally, UK workers have no reasonable grounds for defying a return to the work order when the restrictions are lifted but do not have to comply with such orders while COVID measures are in place.
However, some experts feel a return to normal will spur a massive rise in resignations as workers react to a return to Pre-COVID standards.
More than one in 10 workers are ‘hybrid’ staff, splitting their time between home and the office.
Another 25% are working from home or furloughed, while just half is back at work full-time.
The problems of making the workplace comply with COVID restrictions should not be overlooked.
Vaccinations are an issue – can employers put vaccinated and unvaccinated workers together even if social distancing is still in place.
Work from home gap between bosses and staff
Social distancing also means many offices are too small to house the number of pre-COVID staff who shared the workspace, so many may have to remain working from home regardless of their employer’s view.
Many businesses have already thrown in the towel and deciding to let staff work from where they like.
The number of job adverts citing ‘work from home has increased by a third during the pandemic and now stand at 8% of the total number of advertised jobs, growing faster than other jobs, says the ONS.
A Morgan Stanley business survey across Britain and Europe hints that office staff want to spend an average of two days a week working from home, double the pre-COVID level, with 31% keen to work most of the week remotely.
However, the research employers plan to allow staff to work on average 1.3 days out of the office across the five biggest European countries and 1.6 days in the UK.
The ONS data echoes the result. While 85% of remote workers want a “hybrid” approach, businesses predict most staff will return.
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