It is the thing of fantasy for millions of people working from home – swap the bare spare-room floorboards for a sandy beachside cafe, the lukewarm tea for a cold beer and the capricious weather for constant sunshine.
The fantasy is not so distant. The government of Barbados, which has seen its tourism industry heavily hit by the pandemic, is appealing for people who can work off their laptop to move to the island on a one-year visa.
The Caribbean island has become the latest country to try to attract some of the growing numbers of “digital nomads” who need nothing more than a laptop and a wifi connection to earn a living, no matter where they are in the world.
But how easy is it to go from one virtual desk in your home country to another across the globe?
A growing tribe
There has been a sharp increase in the number of people who no longer work from a set office – be they writers, marketeers, HR professionals, software programmers – and who can do their job by opening a laptop in any location. These online workers can be seen in coffee shops and short-term workspaces around the world, and rely on digital tools to be able to travel as they please.
Putting an exact figure on the number is difficult, though a 2018 study by research firm MBO Partners found that 4.8 million US citizens identified as “digital nomads”.
In response, countries have offered special visas to attract the workers. At the beginning of this month, Estonia opened applications for a year-long “digital nomad visa” so people employed by a company outside the country, or have their own company, can work, provided they earn just over €3,500 [£3,100] a month.
Barbados launched a similar scheme earlier in the summer. Its “Welcome Stamp” costs $2,000 [£1,500], and applicants must earn $50,000 [£37,500] a year, but they are exempt from paying Barbados income tax. The new initiative comes as the island is grappling with the drastic effect that the coronavirus has had on its tourism industry.
Georgia is also trying to attract digital workers with a visa for them to live and work as long as they are staying for six months or longer.
But where to go?
While it may appear to be as simple a process as gathering up a few possessions and hopping on a flight, the reality of shifting your work to a new country can be a lot more complex, and the costs can mount up.
“There are obvious costs such as airfares and accommodation, but also other things that people sometimes forget in the early stages of planning such as an increased cost of living, hotel costs while searching for longer-term accommodation, comprehensive health insurance, local residential taxes and rates, expatriate tax advice, paying for non-UK lawyers to review tenancy agreements and banking charges, to name but a few,” said Lee Mcintyre-Hamilton, a specialist in global mobility tax matters at accountants Blick Rothenburg. “People should also include an ‘emergencies budget’ to cover, for example, the cost of having to return to the UK early and at short notice.”
Luckily there is an extensive community of digital nomads to tap for experience on how much different cities cost to live in. The website Nomadlist.com ranks cities via an extensive list of demands that digital workers typically have – from the overall monthly cost to the standard of free wifi, how friendly it is to women and what the air quality is like. But once you decide where to live, the next key question is where you pay tax.
And where to pay tax?
Whether or not you pay tax in the UK depends on whether you are a UK tax resident or not. HRMC says that if you are in the UK for 183 days or more in a tax year, you are resident. Mcintyre-Hamilton says that prospective digital nomads should work through the UK statutory residence test (SRT) to see when they will become non-resident when they go to work overseas. “It is not always straightforward to determine your UK residence status, so you may want to take some advice at this stage, since there could be a significant financial impact if you get your residence status wrong,” he says.
However, non-UK residents must still pay UK tax on income sourced in the UK such as bank interest, rental income on a property or for income earned from working in the UK for a UK employer. People sometimes think that because they do not have to pay UK income tax, they are exempt from national insurance contributions – which is not always the case.
“The rules for NICs are completely separate to the tax rules for people working overseas. So, for example, if an individual works in Australia for 18 months and becomes a non-UK resident, they should not be subject to UK tax in respect of their work in Australia. However, if they work for a UK employer, then UK NICs will continue to be required for the first 52 weeks of work outside the UK. The employer will be obliged to continue to deduct NICs for this period,” says Mcintyre-Hamilton. Although the tax position is similar for employed and self-employed people, there are subtle differences which should be examined.
Beware the horror stories
Failing to prepare can result in unforeseen and unwanted tax bills in the future. One major pitfall can be when someone thinks they are a non-UK resident, but misunderstands the rules and remains resident. Other problems can arise when people fall foul of the rules, such as the case of a London-based employee who worked from his girlfriend’s house in Dublin but did not tell his employer, or the Irish tax authorities. After a few years, it emerged the man had been tax resident in Ireland, resulting in a tax bill, a long process to unravel the complicated affairs and a large historic social security bill.
Mcintyre-Hamilton cites another case where a UK toy company allowed an employee to work from France for most of the year. However his presence triggered complex corporate tax rules and the company and the French authorities were able to impose corporate tax on the estimated profits he was making from his base in France.