The purpose of this article is to provide a simple but useful guide for explaining the rules relating to tax liabilities for frontier workers. There are also a number taxation FAQs which should help you understand this complex area for cross-border workers.
Under EU regulations a frontier worker can be defined as someone who lives in one member state and works in another, returning home at least once a week. Therefore people who live in the Republic of Ireland (ROI) and work in Northern Ireland (NI) and vice versa are considered frontier workers
Tax liability is a significant area of enquiry for the Borderwise project (the joint initiative run by Citizens Advice and the Citizens Information Board) and it is cross-border workers living in Northern Ireland who represent the bulk of resulting enquiries. This is not surprising as the Revenue Commissioners in the Republic of Ireland have put in place an initiative to ease taxation pressures on Cross Border workers with the introduction of trans-border worker’s relief.
Broadly speaking individuals have a liability to pay income tax on all income earned. This is usually deducted from wages by employers via the PAYE (Pay As You Earn) system or through self-assessment for those who are self-employed. While it is difficult to provide a single definition of “income”, for the purposes of this article it is assumed to be earnings arising from employment.
If you have income from employment in one country and are resident in another, you may be liable to pay tax both where you live and also where you work under each country’s tax laws. To avoid a double taxation situation, the UK and Ireland have negotiated a double taxation agreement. In effect this gives a frontier worker a credit or relief in respect for the income tax that is paid in the country of employment.
UK residents are obliged to declare all earnings that arise from any activities undertaken outside of the UK. Therefore, anyone living in Northern Ireland and working in the Republic of Ireland is required to submit an annual self assessment tax return to HMRC (Her Majesty’s Revenue and Customs) identifying these earnings. The double taxation agreement between the UK and Ireland obliges HMRC to give a Cross Border worker a credit in respect of the actual income tax they have paid to the Revenue Commissioners in the Republic of Ireland. Depending on whether UK income tax liability is greater than the Irish tax paid there may be a balance to pay to HRMC.
Simply put, a Northern Ireland resident working in the Republic of Ireland will pay his/her taxes to Revenue in the south. However, they are obliged to declare earnings as foreign income to the UK HMRC through the self-assessment return. If their UK income tax liability on equivalent earnings is greater than what they have actually paid in the Republic of Ireland they owe the difference.
The difference in UK and Irish tax years complicates this assessment further. The Irish tax year runs parallel to the calendar year from January to December, whereas in the UK the tax year is the twelve months period starting on the 6th April in one year and ending on the 5th April in the following year. For example, the tax year 2008-2009 runs from 6 April 2008 to 5 April 2009.
It is a similar scenario for Irish residents employed in Northern Ireland. The double taxation agreement between the Republic and the UK places an obligation on the Irish Revenue Commissioners to give a credit in respect of any UK income tax which has already been paid by a frontier worker.
As a resident in the Republic you are also obliged to declare your income arising from employment in Northern Ireland to the Irish Revenue Commissioners under self-assessment rules. In addition, in the late 1990s the Irish government introduced a ‘trans-border workers relief’. This scheme effectively removes an income earned in Northern Ireland from any potential balance of Irish income tax payable in circumstances were this is the persons only income and where the individual resides in the Republic. It does this by reducing the tax you pay in Ireland to be in proportion to the amount of income you earn from Irish sources. If you earn no income in the Republic of Ireland then you will pay no tax to the Revenue Commissioners. Unfortunately at present there is no equivalent relief for Northern Irish workers employed in the south.