The Post-Brexit UK/Switzerland social security agreement came into force on November 1, 2021. Lee McIntyre-Hamilton walks you through all the key information you need below, beginning with some background.
Social security contributions (or National Insurance Contributions as we call them in the UK) can sometimes present a few difficulties for payroll when employees work cross border.
The rules on social security in most countries are often separate from tax. Furthermore, unlike tax, it is not normally possible to claim “credits” for social security that is paid in two countries on the same income. So, with cross border employees, you can end up with an employer and employee liability in two countries at the same time.
Given this, social security agreements can be a useful tool for payroll. Many countries have bi-lateral social security agreements with at least some countries. In essence, as well as dealing with social security benefits, these agreements ensure that employers and employees are not subject to social security in both countries on the same income.
The UK has 19 social security agreements with other countries (including the new agreement with Switzerland), as well as an overarching agreement with the EU. The UK agreement with the EU was agreed as part of the Brexit deal - the Trade and Co-operation agreement - that was signed on December 31, 2020.
As Switzerland is not an EU member, a new UK/Switzerland social security agreement (or Convention on Social Security Coordination as it is more formally known) came into force provisionally on November 1, 2021. It replaces an earlier agreement and follows the UK agreeing on the post-Brexit position on social security with the EU via the Trade and Co-operation Agreement.
How does the agreement prevent double contributions?
The UK/Swiss agreement mirrors the EU-wide agreement, as follows:
i) In the first instance (and subject to points ii and iii below), employees should pay social security where they work. So, if an employee is working in Germany, then they should pay social security via a payroll in Germany.
ii) If an employee is sent from the UK to Switzerland (or vice versa) by their employer, then the employee can remain in the UK system provided that the posting is not expected to last for more than 24 months. No contributions will be required in Switzerland, subject to obtaining Form A1 (see below).
iii) If an employee normally works in both the UK and Switzerland (e.g. going back and forth to work regularly between both countries), then the employee will remain in the social security system of the country in which they are resident, provided they perform a substantial part of their activity (i.e. their employment) in that country. If the individual does not perform a substantial amount of their activity in the country of residence, then the employee’s social security liability will shift to the country in which their employer is located.
Some additional points to note:
* ‘Resident’ in this context normally aligns with the country in which the individual is resident for tax purposes but not always. The reason for this is that ‘residence’ for social security purposes is different from residence for tax and looks at a wider array of factors such as where someone normally lives, where they receive their post, where their family is located etc.
* ‘Substantial part of their activity’ generally means the country in which 25% or more of the individual’s activity is undertaken. For example, if the individual works a total of 100 days per annum and works at least 25 days in their country of residence, then they will normally be deemed to be undertaking a substantial part of their activity in their country of residence.
Where individuals remain contributing to one country (say, Switzerland) under these rules, then they will need to obtain a Form A1 from the authorities in Switzerland so that the requirement to operate NIC can be relaxed. In this way, ‘double contributions’ can be avoided.
What does this mean for employers?
For employers, the employee social security position is important. Why? The employer position will follow the employee position. Therefore, if the rules dictate that the employee should contribute to the Swiss system, then their employer will also be required to contribute to the Swiss system.
The responsibility for operating payroll and making the relevant deductions and contributions rests with the employer. Even if, for example, a UK employer does not have a corporate presence in Switzerland, they would still be required to have a Swiss payroll and operate employee and employer Swiss social security contributions in the case where the employee is required to pay into the Swiss system under the rules above.
Final thoughts
The agreement is good news for employers and employees as it provided clarity to both parties and prevents double contributions on the same income. However, as with all social security agreements, employers should take care to review the rules carefully in each case and to ensure that, once the country of contribution is determined, Form A1 is obtained so that social security can be relaxed in the other country.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com
The Post-Brexit UK/Switzerland social security agreement came into force on November 1, 2021. Lee McIntyre-Hamilton walks you through all the key information you need below, beginning with some background.
Social security contributions (or National Insurance Contributions as we call them in the UK) can sometimes present a few difficulties for payroll when employees work cross border.
The rules on social security in most countries are often separate from tax. Furthermore, unlike tax, it is not normally possible to claim “credits” for social security that is paid in two countries on the same income. So, with cross border employees, you can end up with an employer and employee liability in two countries at the same time.
Given this, social security agreements can be a useful tool for payroll. Many countries have bi-lateral social security agreements with at least some countries. In essence, as well as dealing with social security benefits, these agreements ensure that employers and employees are not subject to social security in both countries on the same income.
The UK has 19 social security agreements with other countries (including the new agreement with Switzerland), as well as an overarching agreement with the EU. The UK agreement with the EU was agreed as part of the Brexit deal - the Trade and Co-operation agreement - that was signed on December 31, 2020.
As Switzerland is not an EU member, a new UK/Switzerland social security agreement (or Convention on Social Security Coordination as it is more formally known) came into force provisionally on November 1, 2021. It replaces an earlier agreement and follows the UK agreeing on the post-Brexit position on social security with the EU via the Trade and Co-operation Agreement.
How does the agreement prevent double contributions?
The UK/Swiss agreement mirrors the EU-wide agreement, as follows:
i) In the first instance (and subject to points ii and iii below), employees should pay social security where they work. So, if an employee is working in Germany, then they should pay social security via a payroll in Germany.
ii) If an employee is sent from the UK to Switzerland (or vice versa) by their employer, then the employee can remain in the UK system provided that the posting is not expected to last for more than 24 months. No contributions will be required in Switzerland, subject to obtaining Form A1 (see below).
iii) If an employee normally works in both the UK and Switzerland (e.g. going back and forth to work regularly between both countries), then the employee will remain in the social security system of the country in which they are resident, provided they perform a substantial part of their activity (i.e. their employment) in that country. If the individual does not perform a substantial amount of their activity in the country of residence, then the employee’s social security liability will shift to the country in which their employer is located.
Some additional points to note:
* ‘Resident’ in this context normally aligns with the country in which the individual is resident for tax purposes but not always. The reason for this is that ‘residence’ for social security purposes is different from residence for tax and looks at a wider array of factors such as where someone normally lives, where they receive their post, where their family is located etc.
* ‘Substantial part of their activity’ generally means the country in which 25% or more of the individual’s activity is undertaken. For example, if the individual works a total of 100 days per annum and works at least 25 days in their country of residence, then they will normally be deemed to be undertaking a substantial part of their activity in their country of residence.
Where individuals remain contributing to one country (say, Switzerland) under these rules, then they will need to obtain a Form A1 from the authorities in Switzerland so that the requirement to operate NIC can be relaxed. In this way, ‘double contributions’ can be avoided.
What does this mean for employers?
For employers, the employee social security position is important. Why? The employer position will follow the employee position. Therefore, if the rules dictate that the employee should contribute to the Swiss system, then their employer will also be required to contribute to the Swiss system.
The responsibility for operating payroll and making the relevant deductions and contributions rests with the employer. Even if, for example, a UK employer does not have a corporate presence in Switzerland, they would still be required to have a Swiss payroll and operate employee and employer Swiss social security contributions in the case where the employee is required to pay into the Swiss system under the rules above.
Final thoughts
The agreement is good news for employers and employees as it provided clarity to both parties and prevents double contributions on the same income. However, as with all social security agreements, employers should take care to review the rules carefully in each case and to ensure that, once the country of contribution is determined, Form A1 is obtained so that social security can be relaxed in the other country.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com