International Social Security in The Wake of Brexit

Under the terms of the Withdrawal Agreement (2019), when the UK left the EU on 31 January 2020, it entered a transition period that is set to last until the end of 2020. The transition period will provide time for negotiations on the UK and EU’s new regulatory relationship, with an anticipated agreement set to take effect on 1 January 2021.

However, the transition period itself is already creating regulatory uncertainty, with consequences for UK businesses and others around the world. Of particular concern to employers and their globally mobile employees is the status of where those individuals will continue to make social security contributions.

With thousands of UK citizens on assignment in EU countries, it is important that businesses with globally mobile employees understand how the Brexit transition period could affect their social security obligations.

A1 Certification

Under the UK’s previous regulatory obligations, when posting employees on assignment within the EU, UK businesses would apply for an A1 certificate for the period of an employee’s overseas assignment. Rather than making contributions to the social security system of their host country, the A1 certificate allows that employee to remain on their home country system, also ensuring that their employers are exempted from making employer social security contributions in the host country.

The Brexit transition period has introduced significant uncertainty into the A1 application system as EU countries have essentially taken two different approaches to certification during the transition period. In anticipation of a possible ‘no deal’ Brexit, some countries are imposing a strict end-date on A1 applications of the end of the transition period. Meanwhile, in contrast to that stricter approach, other countries have allowed A1 applications from the UK to continue as normal, presumably in the hope that an agreement will be put in place before the transition period ends.

HMRC A1 Advice

In 2019, HMRC issued a communication to employees with an A1 certiicate, advising them to contact the relevant social security authorities within their host countries in order to confirm the ongoing validity of their certificates following Brexit. Those employees were encouraged to confirm whether they would need to begin contributing to the host country social security system, potentially being required to make double social security payments.

While the advice was intended to aid compliance in the event of a no deal Brexit, for many businesses, the prospect of double social security payments has led to more concerns and uncertainty around the position.

A1 Applications During the Transition Period

The transition period, set out in the Withdrawal Agreement, keeps the UK under EU regulations until the end of 2020. A1 applications that were previously granted and were due to end prior to that date, continue to apply as normal during the transition period. Many EU countries are allowing new A1 certificates to be issued, to end when the transition period ends, in the hope that a Brexit deal is struck and measures are put in place for globally mobile employees to continue their international assignments with clarity on the social security position.

However, the end of the transition period still represents a question mark for many employers and their employees. We would expect the on-going negotiations between the UK and the EU to cover a number of long-term social security options for the future relationship, including:

• An arrangement similar, or even identical, to existing EU regulations. This option is preferred by many globally mobile employees, employers and advisers since it represents a level of clarity and direction for businesses. Under this arrangement, it would be anticipated that globally mobile employees would continue to only pay social security in their home countries where an A1 certificate or similar had been issued, depending on what was agreed in the arrangements;
• A more complex arrangement considers a no-deal Brexit and the need for a potentially lengthy period of further negotiation. In this context, the arrangement would likely mean managing social security arrangements between the UK and individual EU countries. This could mean periods during which there is no agreement in place and in the absence of an agreement for any length of time, individuals and their employer face the risk of having to make social security payments in both the home and host countries.

Consequences for Employers and Employees

Some global mobility programs include provisions to ensure that mobile employees are not made worse off by their overseas assignments, albeit many of these programs do not stretch to social security. In this context, in the event of a no-deal Brexit, we may see employers funding social security contributions on behalf of their employees in their host countries, while employees continue to make social security payments solely in their home country. The long-term cost of such a strategy would be prohibitive for many employers, with potential knock-on consequences for the UK, EU, and global business landscapes.

The situation may be equally complicated for employees. The long-term prospect of making double social security contributions means that employees will need to keep track of their payments throughout their time in their host country in order to work out the relevant entitlements when they retire. The resources, time, and effort required to track those contributions might seem unjustified to many employees, given the relatively minimal eventual benefits if they were only on short term assignment to that country.

Complicating Factors

Whatever certainty or momentum that had been established regarding post-Brexit social security arrangements was significantly shaken by the 2020 coronavirus pandemic. The global crisis has threatened existing Brexit timelines and, while neither the UK government or the EU have made any announcements in this regard, there may be delays in the transition negotiations. Given the challenges facing the UK and the EU, it is easy to see how social security is not a priority issue for either party but, should a Brexit delay be announced, the uncertainty amongst employers and employees could grow significantly.

With many countries only issuing UK touching A1 certificates for periods lasting until the end of the transition period (31 December 2020), the prospect of double social security payments, or some sort of additional A1 application with associated extra costs, is becoming increasingly likely. However, given the number of complicating factors, uncertainties and unknowns currently facing businesses across the world, the situation has the potential to evolve quickly.

Unfortunately, until Brexit negotiations conclude and deliver clarity for businesses, employers in the UK and the EU will continue to have more questions than answers.

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If you would like to discuss how we can assist with your global mobility needs in greater detail or require further assistance, please contact our Global Mobility team via email global.mobility@activpayroll.com.