Double Tax Relief for Cross Border Workers

Many clients form part of the workforce navigating cross-border taxation issues. Despite paying taxes through their employer’s Irish payroll system, they may also be required to file a UK tax return. This requirement stems from the UK tax policy, which mandates UK residents to report their worldwide income to Her Majesty’s Revenue and Customs (HMRC). This comprehensive scope includes all forms of income, such as employment earnings, interest, dividends, rental proceeds, pensions, and capital gains.

Working in the Republic of Ireland is treated as working outside the UK for income tax purposes, therefore you will be required to prepare and submit a UK tax return each year to declare your Irish PAYE income.

When preparing your UK Tax return, you will be entitled to a personal allowance i.e. the amount you can receive tax free before applying tax rates. This means for the 2021/22 tax year; you can receive £12,570 free from UK tax. The income tax system in Republic of Ireland operates using a range of tax credits instead of a personal allowance, but essentially it means you also have a tax-free entitlement in Republic of Ireland.

Double Tax Relief

One of the functions of the UK-Republic of Ireland Tax Treaty is to prevent double taxation of the same income twice.

Double Tax Relief (DTR) either allows one country to tax your earnings or allows a credit for the foreign tax paid in the other country. The method of double taxation ‘relief’ will depend on your exact circumstances, the nature of the income and the specific wording of the treaty.

As a cross-border employee, you are typically obliged to pay income tax via PAYE in the country where you carry out your duties, but your ultimate tax responsibility is with the country where you live, so you must submit an annual tax return each year.

Calculating Double Tax Relief

Under the UK-Republic of Ireland Tax Treaty, when calculating your UK tax liability you will be entitled to Double Tax Relief (DTR) based on tax already suffered from your Irish employment, i.e. the income tax and Universal Social Charge (USC) deductions.

There is no relief for PRSI which has been deducted, this is a tax that is levied in the Republic of Ireland and is similar to National Insurance charges in the UK. The Double Tax Relief can reduce your UK tax liability to nil but it can never create a refund of UK tax. In some cases depending on personal circumstances, after claiming all available Irish tax credits, some individuals’ exposure to tax in the Republic of Ireland is less than your exposure to UK tax, resulting in a top-up UK tax liability, despite having no income generated in this tax jurisdiction. This will become clear once your UK return is prepared.

The Irish tax year runs with the calendar year while the UK Tax year runs from 6th April to 5th April the following year, therefore it is important to retain your payslips at the end of each tax year. A year-end review of your position is also advisable to ensure you are paying the correct tax in both Ireland and the UK and that you are maximising tax reliefs available in both jurisdictions.

The rules are complicated regarding the social security position when individuals are working both in the UK and another country within the European Economic Area (EEA), for example when someone lives in Northern Ireland but works in the Republic of Ireland and specialist advice should be sought.