Rose Tierney’s tax consultancy, TTax, has two offices little more than two miles apart – one in Kilcorran near Smithborough in Co Monaghan and the other just across the Border in Roslea, Co Fermanagh.
Life would be easier with just one – one electricity and heating bill, one set of rates, the lack of a rental bill, one payroll and pension scheme. A single, lower heating bill would be nice, says Tierney drily.
“There’s 11 of us in my small little practice,” says Tierney, who set up the Roslea office in 2021 so as not to have to operate a complex and expensive dual payroll system from her Monaghan base.
This way, Tierney’s staff in Monaghan can work there, or remotely from their homes in the Republic, and their Fermanagh colleagues can do so in Roslea, or from their own homes in Northern Ireland without falling foul of Irish or UK tax rules.
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Her actions have kept her employees safely within rules, but others are not so lucky: “We do hundreds and hundreds of tax returns here, so we have seen where people have higher tax bills now because they work from home, because they’re not commuting.”
Wage rates in the Republic are higher but so, too, are taxes: “The Universal Social Charge pushes the rates up for NI workers who take up a job in the Republic, so they could end up paying thousands extra,” she warns.
Tierney’s case and her actions highlight little known and even less understood rules and regulations about cross-Border tax and pension rules – ones that have become even more difficult to negotiate in an era of remote working.
Despite the talk of ever-growing connections between the two jurisdictions, the numbers working cross-Border are falling, except for those employed in public services who are covered by an Ireland/United Kingdom double taxation agreement, says Ibec executive director, Fergal O’Brien.
“People are quitting jobs [in the private sector] because of being mandated to return to the office and new ones aren’t being hired because it’s too problematic,” he told The Irish Times.
Workers living in the Republic but working in Northern Ireland have for years used the Transborder Workers’ Relief under which they pay tax to the UK’s Revenue & Customs, without any further tax liability to the Republic’s Revenue Commissioners if that is their sole source of income.
However, they are not able to claim that relief if they do any work for their Northern Ireland-based employers from their homes in the Republic – including after-work calls – since exemptions brought in during the Covid pandemic have lapsed.
Workers living in Northern Ireland but working down South sometimes face a top-up tax bill to HMRC if the tax and USC paid in the Republic do not cover the equivalent UK liability as they do not have similar transborder relief. This could happen, for example, if the employee had made a pension contribution for which there is no tax relief in the UK, Tierney explained.
There is also a significant difference in the nature of tax credits in both jurisdictions.
Existing rules generally work well if people are physically posted to work in the other jurisdiction, or cross daily to work in offices.
“It doesn’t work if you work from home remotely, or if you carry out some duties in your home,” says Tierney.
The difficulties are best illustrated by a car park, perhaps. Seven or eight years ago, a quarter of the spaces in the car park of the US insurer, Allstate in Pennyburn in Derry, overlooking the river Foyle, were filled by Southern-registered cars. Today, just 8 per cent of Allstate’s employees in Derry are from the Republic, or, more accurately, from Donegal, just a couple of miles away.
“A lot of companies here are seeing the same,” says Allstate executive, Aidan O’Kane. The US insurance giant has been vocal as part of the Cross-Border Workers Coalition along with Seagate, Ibec and the Confederation of British Industry in seeking change.
“We have great talent built up in Derry over 25 years,” says O’Kane, the director of Allstate NI’s IT operations.
“This is one of the most important talent centres we have. We’ve invested more here. Flexibility around cross-Border working would allow us to access even more skills and talent on Donegal’s side of the Border,” he said.
Set up in 2020, the Cross-Border Workers’ Coalition has pushed hard for permanent changes to tax rules, meeting three times with Paschal Donohoe during the latter’s term as minister for finance. It says the relaxation of rules during the Covid pandemic that allowed people to work remotely should be brought back and made permanent,, while Northern employers should not have to run a separate payroll in the Republic for its workers living there.
However in 2021, the government’s tax strategy group ruled out making the Covid relaxations permanent, saying it would be “impracticable from a legal perspective and challenging from a statutory footing”.
Ibec executive director, Fergal O’Brien says the island should be exploiting the fact that it is heading towards having a nearly four million-strong labour pool.
“We should be making a big deal of the fact that we now have a labour market of scale, with all of the skills and expertise that go with that and present that as a joint investment offering,” he said.
Around 20,000 people declare they cross the Border daily, or weekly, to work which, he says, is “very low, and much lower than one would expect, particularly with the changes to the world of work of recent years”.
Part of the reason is that operating dual payroll systems as currently required is expensive. That has left companies having to order staff back into the office to comply with tax rules, or, just as importantly for companies in the Republic, for fear of facing a UK corporation tax bill.
Having to mandate people to return to the office is deeply unpopular with many workers.
“[It] feels highly unfair. My NI colleagues [can] work from home while I am forced to commute to an empty office to work as I would at home over Zoom, Teams etc,” said one Donegal resident working in Derry for three years.
O’Brien says that experience means it is becoming more difficult to hold on to staff. “Where they are retaining them, they’re essentially facing an inequity of treatment.”
The problem has impacted employers and workers in Border counties most acutely, and most especially in Donegal “but it can affect people anywhere on the island”, he says
The problems are not just confined to remote working, says Rose Tierney. “Small businesses and cross-Border employers must comply with complex taxation rules designed for large, international operations.
“For workers who live on one side of the Border and work on the other, the complexity of dual payroll and the lack of pension tax relief are difficult and costly for both employers and employees to navigate,” she goes on.
The Department of Finance in Dublin has been cautious about change, and any conversation around reform must take place between Dublin and London, not with Stormont, since it does not have taxing powers.
Other European Union states with land borders have found solutions. Belgium and Netherlands have agreed bilaterally that cross-border workers can work at home for half of their working week without complications.
Spain and France have agreed a simpler arrangement. Cross-border workers resident in Spain are only taxable in Spain’; those resident in France are only taxable in France.
Switzerland and France have also reached an agreement, though the rules vary depending on the Swiss canton, while Belgium and France have rules for cross-border workers living with 20km of their border.
The issue was examined this month in a report based on independent research commissioned by the Labour Employer Economic Forum (LEEF) Shared Island Working Group, funded by the Irish government, and co-authored by Tierney. Highlighting a 2001 North South Ministerial Council report, the LEEF report noted that the barriers existing then were well understood, including tax and security, skills and qualifications, transport, cultural issues, among others.
“In 2024, many of the findings of [that] research still apply and arguably have become more complicated, with [the United Kingdom’s exit from the European Union] and changing work practices,” the LEEF authors noted.
Some employers have decided not to hire more cross-Border workers, while some multinationals have warned that the smaller available labour pool is making it more difficult to compete for future investment within their organisations.
The changing climate is beginning to become visible in job adverts where companies now warn in advance that remote working is allowed “in this jurisdiction only”, says Tierney.
One large indigenous Northern Ireland company that expanded into the Republic is now “regretting the decision because of the challenges it faced in terms of the mobility of workers needed to work on both sides of the Border”, the report records.
An additional problem is that both employers and workers struggle to find the right information and “indeed those providing advice and support to them do not always know where to access advice and/or then understand/interpret and apply the advice”.
Sometimes, one professional source told the LEFF report’s authors, “the situations are so complex they did not know what question to ask, let alone the answer they were seeking”. The information failures “can have significant repercussions – involving costs for workers and employers, noncompliance penalties because the rules aren’t understood and/or they become too difficult to comply with”.
If tax is a difficult area, pension rules are a nightmare. Tax relief on pension contributions for cross-Border workers happens only in very limited circumstances, while the report’s authors found evidence of “double taxation on transfer of Personal Retirement Savings Accounts (PRSAs)”.
Employees appear baffled by auto-enrolment pension rules. There is nothing to stop a worker living in the Republic but working in Northern Ireland from joining the UK auto-enrolment scheme.
“However, based on current rules, they would not be entitled to tax relief on their contributions in [the Republic] and could be taxed on the employer contributions as additional salary or benefit in kind,” they warned.
Clear guidance is also needed on the Republic’s version of auto-enrolment which comes into operation next year to ensure that Northern-resident workers are not taxed on the employer or State contributions by HMRC.
Two-thirds of workers surveyed have no idea of the tax rules, as shown by the fact that fewer than 2,000 workers living in the Republic apply for transborder workers relief.
“To be honest, there are thousands of cross-Border workers who aren’t filing returns. That’s part of the problem in counting the numbers because a lot of people are flying below the radar,” says Rose Tierney.
The tax outstanding might be small, due to double taxation treaty credits and the transborder relief, but it is difficult to get political traction to change rules when so few are currently affected, even though simplified rules could benefit far larger numbers.
Ingenuity is being displayed, too. Some workers are travelling to remote work hubs just over the Border that are nearer to their homes than their place of employment, but comply with tax rules.
However, it is not just about tax. The need for dual payrolls creates knock-on complications for mortgage applications, welfare benefits, income protection insurance. Badly handled, employers can end up with corporation tax issues.
And then there are the pension questions. There is no tax relief on pension contributions for cross-Border workers, except for employees physically posted out of the jurisdiction who continue contributions to their existing pension scheme.
“If you just take up a job across the Border and you make a pension contribution through the employment, you do not get tax relief in your home country on that contribution,” Tierney says.
Such rules make pensions a questionable investment for cross-Border workers, she continued, which makes little sense given that people are encouraged to plan their retirements.
The LEEF report also highlighted the difference between private-sector cross-Border workers and those working for government, or public service organisations. Cross-border commuters working for public bodies are taxed by their employer and have no concerns about extra Revenue or HMRC bills because of Article 18 of the Anglo-Irish double tax treaty.
“However, what doesn’t appear to be widely known is that, as soon as these workers start working remotely from their home jurisdiction, the complications about tax filing and dual payroll applies to them, too,” says Tierney. This affects local authority workers, and teachers as well as higher-ranking civil servants.
So what solutions can be found?
“It wouldn’t in my view take a lot to fix the pension problem,” Tierney says. “It would [need] a tweak to the current treaty. Of course, that’s bilateral, so London and Dublin need to agree.”
Other countries have set minimum thresholds for the number of days that can be worked at home without triggering the need for dual payrolls, including setting minimum social security thresholds.
Under social security rules within the European Union, the obligation for all social insurance contributions shifts to the jurisdiction where the worker is living, not working when just 25 per cent or more of the duties of employment are carried out there unless the terms of a local bilateral deal override that provision.
Under European Union rules, Ireland is due to increase this to 40 per cent, but it is not clear yet whether the UK will follow suit: “This is an avenue that should be explored,” said the tax expert.
