What is the issue?
For workers seconded between the UK and Switzerland and those working in both the UK and Switzerland (“multistate workers”) before 1 January 2021, their social security positions were determined by EU social security coordination regulations.
Under these regulations, the worker is paid where they worked unless they were a posted or multistate worker. Posted workers could remain within their home country's social security system for up to 24 months, with the option to extend this. Multistate workers could stay socially insured in their home country if they undertook at least 25% of their work in that country.
However, for all UK/Swiss (or Swiss/UK) secondments and UK/Swiss multistate working arrangements commencing on or after 1 January 2021, their social security positions will be determined by the 1968 UK/Swiss social security agreement.
The 1968 agreement was drafted at a time before globalisation when UK/Swiss cross-border working arrangements were rare. Consequently, it does not provide explicit coverage for some common UK/Swiss cross-border working arrangements and leaves us in a position where double social security contributions could arise.
The UK is in the process of negotiating a social security agreement that covers all EFTA countries (including Switzerland). However, without this agreement in place, the only regulation that we have to guide us is the outdated 1968 agreement.
Working arrangements covered by the 1968 agreement
To the extent that workers are covered by the 1968 agreement, the provisions are similar to the EU social security regulations in that:-
- A national of the UK or Switzerland pays social security contributions in the country they work in unless exceptions for posted workers and other special types of working arrangement apply.
- Where an employee is posted by an employer with a place of business in Switzerland/the UK to work in the UK/Switzerland for a period of 24 months (with scope to extend this period if agreed by the UK and Swiss social security authorities), they will remain socially insured in their home country social security system if they obtain a certificate of coverage (COC) from that country, i.e. the country they have been posted from.
- Special rules apply to aircraft personnel and mariners, and members of the diplomatic and consular service.
- There is an “exception clause” where the UK and Swiss social security authorities may agree to modify the rules above where this is in the workers best interest.
Working arrangements not covered by the 1968 agreement
There are clearly two categories of workers who are not covered by the agreement:-
- Individuals who work exclusively in either the UK or Switzerland but are not resident in the country where they work and are not nationals of either country; and
- Workers who work in both the UK and Switzerland (“multistate workers”).
For the former category, we recommend that guidance is obtained from HMRC and the Swiss social security authorities to determine, in which country the worker is socially insured.
For the latter category (“multistate workers”), these workers could be subject to both UK and Swiss social security contributions on their employment or self-employment income.
Clarity on social security coverage for UK/Swiss multistate workers?
Nevertheless, in late April, HMRC, recognising this deficiency in the UK/Swiss agreement, issued guidance that indicates:-
- where individual works in both the UK and Switzerland it is clearly in their best interests to only be socially insured in one country; and
- there is scope under the exception clause contained in the 1968 agreement to make a COC application to HMRC or the Swiss social security authorities to obtain their agreement in the country in which the worker should be socially insured
In the absence of any further guidance from HMRC regarding how the determination at 2 above should be reached, our opinion is that the methodology should mirror the multistate worker provisions contained in EU social security coordination regulations.
In broad terms, for employees, this would mean that they pay social security contributions in the country they habitually reside in if they undertake at least 25% of their work in that country. If they do not meet this test, then they should pay social security contributions in the country where their employer is registered. Additionally, where the employer is not registered in either the UK or Switzerland, there is scope to argue that the employee should be socially insured in their country of residence.
For example, let’s say an individual is employed as the CEO of a Swiss bank, is a resident in the UK, works 60% of their time in Switzerland, and 40% of their time in the UK. In this case, there would be scope to claim that the CEO should be socially insured in the UK and pay UK NIC (and not Swiss social security contributions) as they spend more than 25% of their time working in the country where they live.
Whilst posted workers and UK and Swiss nationals who work exclusively in the UK or Switzerland are covered by the 1968 agreement, the position for Swiss/UK multistate workers is subject to interpretation.
HMRC’s guidance on the possibility of applying the exception clause to these workers is good news. However, as there is no categoric guarantee that COC’s will be issued to confirm social security coverage in one country (this is merely a concession), the risk that UK/Swiss multistate workers could be subject to social security contributions in both countries is still there.
How Mazars can help?
We work closely with our Swiss colleagues to advise on these types of cases and have successfully obtained COC’s for UK/Swiss multistate workers under the exception clause.