Brexit and National Insurance – rules from 1 January 2021

BLOG13th Jan 2021

Following the UK’s exit from the EU, both parties have reached an agreement regarding the details of the National Insurance rules to be applied between the EU states and the UK from 1 January 2021. This agreement largely replicates the current EU social security coordination regulations and aims to ensure workers who move between the UK and the EU are required to only pay into one country’s social security scheme at a time, usually the country where the work takes place. There are special provisions for multi-state and detached workers, with current rules continuing to apply to those protected by the Withdrawal Agreement.

Multi-state workers

The rules for multi-state workers remain broadly the same, whereby the employee continues to pay National Insurance in their country of residence providing they carry out a substantial (25%) part of their activity there. Where this is not the case, the National Insurance liability will generally fall under the legislation of the country in which the employer has its registered office or place of business.

It is possible to secure a multi-state worker A1 certificate to exempt certain contributions in the host country and allow contributions to continue in the home country. Post 1 January 2021, we anticipate most A1 certificates that are already in existence to continue to be valid and would expect employees to continue to apply for them as required.

Detached Workers

The detached worker rules also remain broadly the same and apply to employees sent by an employer to work temporarily in the UK or an EU state. In an EU country where the detached worker rules apply, the employee can apply for a certificate or document to continue only paying UK National Insurance contributions, providing the work is temporary (up to 2 years). This means the employee will only be required to pay social security in the UK and not in the country they are working in.

One major change to the detached worker rules, however, allows EU countries to ‘opt out’ of this arrangement. Each country must agree to apply the detached worker rules by 1 February 2021 for them to continue to apply. As such, there is currently no guarantee that these rules will apply for all postings until a time whereby each EU state formally confirms their respective agreement or non-agreement.

For postings starting before 1 February 2021, and where an employee is being posted to a country yet to opt out of the detached worker rules, the employee will continue to only pay UK National Insurance contributions, providing they have the relevant documentation. This will remain the case unless the employee’s circumstances change (for example, change of employer, postings in another country without HMRC’s knowledge or any break in work) and will stand even if the relevant EU country subsequently opts out.

Where EU countries decide to opt out, employers and employees will be liable to pay contributions in the country where they are temporarily working (unless they are in the scope of the Withdrawal Agreement).

As at 13 January 2021, Austria, Hungary, Portugal, Sweden have already agreed to apply the detached worker rules. The latest list of countries applying the detached worker rules can be found here.

HMRC have issued specific guidance detailing the special rules for postings between the UK and Norway, Switzerland, Iceland and Liechtenstein which take effect from 1 January 2021:

  • Norway: Employees working temporarily in Norway for a period of up to 3 years should apply for a certificate or document to continue paying UK National Insurance contributions. Applications must be made within 4 months of the start of their posting.
  • Switzerland: Employees working temporarily in Switzerland for a period of up to 2 years should apply for a certificate or document to continue paying UK National Insurance contributions.
  • Iceland: Employees working temporarily in Iceland (and a non-UK and non-EEA national) for a period up to 1 year should apply for a certificate or document to continue paying UK National Insurance contributions. This can be extended by a further year with agreement from the Iceland social security institution before the end of the first year.
  • Liechtenstein: Employees working temporarily in Liechtenstein may be exposed to double contributions as there are no special rules currently in place to potentially remove the liability arising there. Employees posted from the UK will still be required to pay UK National Insurance contributions for the first 52 weeks of the posting.

Protection provided by the Withdrawal Agreement

Employees posted between the UK and the EU States, Norway, Switzerland, Iceland and Liechtenstein prior to 1 January 2021 should be protected by the Withdrawal Agreement. The Withdrawal Agreement ensures that current rules will apply to certain individuals from 1 January 2021 providing they continue their work as they were without any interruption.

Ultimately, an employee with a valid A1 certificate who continues with their posting will still be covered by that A1, i.e. social security will remain payable in the home country and not the host country.

Should you require any advice or assistance in relation to the above, please contact Karen Groat, Craig Burnett or your usual AAB contact.