Background: EU social security rules
The relevant EU rules in this area provide a framework for protecting an individual’s social security rights if the individual moves within the EEA countries and Switzerland. A fundamental principle underlying the framework is that an individual is subject to the laws of one country only. The rules prevent employers and employees paying social security contributions in two countries and ensure that those working in one country can enjoy the social security benefits of a permanent resident. The framework also ensures equality of treatment of EU nationals regardless of where they are in the EU.
The EU rules accordingly provide that the employee and employer shall pay social security contributions in only one country, which is generally the one in which the employee is physically working. There are two main exceptions to this:
In addition, if it is in the employee’s interest to remain within their home country’s social security system, it may be possible to apply for a special exception. This route is often used in the situation where an employee’s posting is expected to last more than two years.
In terms of the practicalities, if a UK employer is sending a UK employee to work in a country covered by the EU rules, it should apply to HMRC for an A1 or E101 certificate.
If a UK employee is working in two or more countries covered by the EU rules, they should apply to HMRC for an A1 or E101 certificate or to the social security authorities in the country in which the employee is resident (if different).
In either case, the effect of the certificate is to confirm the country in which social security contributions should be paid and prevent double contributions.
The future position: deal or no deal?
The UK left the EU at the end of 2019, with the Withdrawal Agreement confirming that the current EU social security rules would continue to apply until the end of the transition period, which is 31 December 2020 (unless there is an extension).
Irrespective of whether the EU and UK agree a trade deal, the EU rules will continue to apply to UK nationals and their family members living or working in the EEA/Switzerland at the end of the transition period (and vice versa). Existing A1 and E101 certificates issued for individuals within the scope of the Withdrawal Agreement will therefore be honoured provided that the situation remains unchanged.
But what is the position in relation to new arrangements? HMRC, in its October 2020 Employer Bulletin, has indicated that for arrangements that begin after the end of transition period applications for A1 or E101 certificates should continue to be made. HMRC has, however, indicated that while negotiations are ongoing it will only be able to process applications for certain individuals, principally those within the scope of the Withdrawal Agreement.
HMRC has said further guidance will be issued in due course. The position is likely to depend on whether a deal is concluded between the EU and the UK before the end of the transition period.
Social security contributions after a no-deal Brexit
Apart from for Ireland, with which the UK has agreed a reciprocal contributions social security agreement under which the EU rules will continue to apply, the position is unclear.
Prior to the EU social security rules being implemented, the UK had negotiated reciprocal agreements dealing with social security contributions with some of the other EEA countries. However, the UK government considers that these agreements are no longer valid. We understand some EU countries share this view, while others do not.
If the old reciprocal social security agreements do not apply and a new bilateral agreement with the relevant country is not agreed, the position on contributions would be determined in accordance with the domestic law of each country. This could potentially result in a contributions liability in both the UK and the host country:
Social security position if a deal is agreed
The UK government and the European Commission have each published draft treaty texts on social security co-ordination. Both sides have included reciprocal provisions to prevent social security contributions being due in both the home and host countries so, from this perspective, there does not appear to be much difference between the parties. The more contentious issue relates to the ‘exportability’ of benefits, an issue which is politically important and so may delay any deal on social security contributions.
What steps should businesses take now?
UK businesses with employees who are likely to be working in the EEA or Switzerland after 31 December 2020 should review the position as soon as possible and consider:
HMRC’s October Bulletin sought to reassure employers and individuals that the government is working with the EU to establish ‘practical, reciprocal provisions on social security co-ordination…including preventing dual concurrent social security contributions liabilities’. Pending such an agreement being reached, this remains an area in which businesses face considerable uncertainty and a potential increase in costs.
The situation in other countries
The Belgian Social Security Authorities have also issued Brexit guidance, contained in a newsletter of 18 November 2020. In accordance with the Withdrawal Agreement, cross-border situations such as secondments, working in several member states involving the UK and an EU Member State prior to 31 December 2020 will continue to be governed by the current European rules as long as there is an uninterrupted cross-border situation.
The Authorities have clarified that any interruption ends these ‘grandfather rights’, although some situations such as e.g. sickness and annual holidays will be considered not to constitute an interruption.
As far as new situations in the absence of a deal are concerned, the Belgian Social Security Authorities consider the Belgian-UK social security treaty can no longer be applied and these situations will be governed by the Belgian rules. Under Belgian rules, employees seconded to Belgium will not be subject to Belgian social security if the employment relationship remains exclusively with a UK employer during the employment in Belgium regardless of its duration.
An ‘article 3 certificate’ must be applied for from the Belgian Social Security Authorities. Conversely, an employee seconded from Belgium to the UK will be able to continue to be insured in Belgium for a period of six months, which can be extended by a maximum of a further six months. A document (K/TM 138ter) is issued to that end.
As far as personal tax charges are concerned, Brexit will not have consequences on the tax situation of Belgian-UK cross-border workers since this is ruled and will continue to be ruled by the treaty for avoidance of double taxation between Belgium and the UK. Where a worker is taxed in Belgium and covered by Belgian social security, there might be an additional special social security contribution, however, for seconded workers who, under applicable conditions before Brexit, could be exempted from Belgian social security in the past. This is capped at EUR 731.28 per household
In the event of a no-deal Brexit, the following principles will apply:
There are two possible scenarios in Germany, set out below.
The Social Security Agreement of 1960: In the event of a no-deal Brexit, from a German legal perspective, the Social Security Agreement (SSA) between Germany and the UK of 1960 was never terminated and would therefore be likely to apply again after the Regulations ((EC) 883/2004 and 987/2009) cease to apply. However, the scope of the SSA is fairly limited compared to the current EU rules on social security coordination. Moreover, as the UK considers it no longer applicable, it is unclear whether the SSA would actually apply in the event of a no-deal Brexit.
German Social Security Law: if the SSA does not apply, German social security applies as set out below.
If an employee is posted to Germany from the UK, UK social security continues to apply while German social security does not apply, if the posting:
If an employee is posted to the UK from Germany, German social security continues to apply, if the posting:
However, whether UK social security applies in additional to German social security must be assessed under the applicable local law in the UK.
This means, the legal situation after a no-deal Brexit is also currently unclear from a German legal perspective. However, employers who do not correctly pay social security contributions in Germany when they are required to do so face, among other risks, fines of up to EUR 25,000for an administrative offence and, in extreme cases, even criminal liability.
Therefore, employers who post employees from the UK to Germany and vice versa should carefully monitor Brexit developments and determine which country’s social security applies after a no-deal Brexit.
In Italy, a Decree Law (n. 22 of 25 March 2019) states that the EU Regulation on Social Security Coordination (884/2004) applies up to 31 December 2020.
Following the Withdrawal Agreement, on 4 February 2020 The Italian National Social Security Body (INPS) issued a Circular (n. 16), which provides operating instructions with reference to social security to be applied until the end of the transition period.
In particular, INPS confirmed that the fundamental EU social security principle of the aggregation of insurance periods needed to achieve the requirement for social security benefits will continue to apply.
In addition, the Circular specified that with reference to retirement, family, unemployment, sickness, maternity and paternity, secondment and recovery of undue benefits and contributions, all benefits due are granted up to 31 December 2020, both for applications submitted before that date and under examination and for applications submitted after that date but which referred to prior situations.
The Italian Government has not yet taken a decision concerning the rules to be applied after the end of the transition period.