Shift to working from home could cost Treasury £32 billion a year

A shift to working from home could see the Treasury lose up to £32 billion a year in taxes if high earners move abroad, a new study has suggested.

Higher and international rate taxpayers, such as chief executives and marketing directors, account for around one sixth of all income tax paid in the UK.

These workers, who meet 17.3 per cent of the nation's income tax bill, are more likely to be able to work from home as their jobs can be done away from an office.

Anyone in such a role who chose to move abroad during or after the pandemic would pay income tax in their new country of residence rather than to the Treasury.

In the 2018-19 financial year, £187 billion was paid in income tax in the UK, with the majority being met by those in highly paid jobs.

Almost one in three British jobs can be carried out remotely, according to the research, which was published in the British Tax Review on Friday.

It is thought that much of this work could be done from abroad, prompting concerns about losses into the billions that would extend to VAT and the purchase of goods and services.

Kit Malthouse, the policing minister, said on Friday that the Government did not intend to enforce a return to offices ahead of a planned consultation on the future of flexible working.

“This is a situation for employers and employees to discuss and negotiate themselves," he told Sky News.

“I know there has been some media about this over the last two or three days, we don't have any intention to make it compulsory to return to the office.

“Our manifesto at the last election did contain a pledge to consult on more flexible working to allow people to work from home should they wish to, and we will be doing that later on this year.”

Rita de la Feria, a University of Leeds professor who has co-written the British Tax Review study, said the effects of working from home policies would be felt “more significantly” in the UK and similar countries.

"New mobile workers are likely to be at the top of the income distribution and even a small number could result in significant revenue losses to the UK, of between £6 billion and £32 billion,” she said.

"The likely effect will be a tightening of employment rules, introduction of new tax avoidance rules and increased personal income taxes competition with countries fighting to attract new mobile workers,” Prof de la Feria added.

A drain of income away from the Treasury has the potential for “much wider” economic and social consequences as tax systems attempt to adapt to a digital age, Prof de la Feria said.

"How big these challenges are, and how countries will react to them, will be a key issue in the coming years."

The right to work from home could be enshrined into law and advice about remote working could extend beyond the planned easement of restrictions on July 19, according to reports earlier in the week.

In a boost for those who wish to work flexibly beyond the pandemic, employers may be required to prove that it was vital for staff to attend their workplace and that they could not do their job remotely.

Home working could remain government advice on a “hybrid” basis and employers may have to meet minimum ventilation standards in offices when their employees do return, according to leaked draft documents seen by Politico.

Twenty-six per cent of employees worked from home during 2020 after the outbreak of the coronavirus pandemic, according to the Office of Statistics.

This was more than double the 12.4 per cent of staff who worked from home in 2019.