Conversation with Saul Brownstein, solicitor and tax adviser at Sykes
Anderson LLP, concerning a UK national and resident going to work in France
Please note specifically that this Q&A only applies to the relationship between the UK and France, even though this operates within the context of a EU regulation. Other EU countries may interpret the Regulation differently, or derogate from parts of the Regulation.
Q. Why should I care about this?
French social contributions or cotisations (I'll call them cotisations) are higher than UK National Insurance contributions (NICs). As a UK resident who is going to work in France, you and your employer may be able to pay UK NICs, which will probably represent a significant saving. Equally if you are thinking of setting up a business in France your liability for self-employed cotisations might be far higher than in the UK.
Q. How much higher?
As a very basic rule of thumb, if an employee's salary were £52,000 pa, the cumulative NI payable by the employer and the employee in the UK (contracted-in employee) would be some £9,222 (employer £6,050 (11.6% of total salary), employee £3,172 (6.1% - total NI 17.7%of salary)). In France it would be some £18,161 (employer £12,468 (24%), employee £5,693 (11% - total NI 35% of salary)). French cotisations are thus nearly double for this salary. Even when you deduct French allowances, etc., which can be significant, the saving is still large. (Remember that since NI works on marginal rates, you cannot directly apply these percentages to other sums).
Q. But if I pay in the UK won't I lose my rights to any benefits in France?
Not necessarily - but you have to be careful. An EC Regulation covers this area. Some benefits are withheld if you don't make cotisations in France. 'Benefits' includes hospital treatment.
Q. What's the underlying principle?
The general principle is that a citizen of any EU country who is in France must be treated in the same way as a Frenchman is. This means that you have their rights, but also their obligations. If you reside in France, and start paying their cotisations, you can claim in the same way that they can, if you need to. If you prefer to try to pay the lower NICs in the UK, your rights in France may be restricted, as explained below.
Q. So I can't have my cake and eat it?
No. The EU recognises that different member-states have different cultures, which are reflected in their social provision. It wouldn't work, nor would it be fair, if we could all pay cotisations in the lowest-taxing country, yet claim benefits when necessary in the most generous.
Q. Does it matter where my employer is situated?
Yes. If your employer is based in France (for example, a company with its registered office in France) and you are working in France, you will always pay cotisations in France. It is only if your employer is regarded as UK-based that you can continue to pay NICs in the UK. Your employer must be responsible for your recruitment, your contract of employment, and the nature of your work and be able, if necessary, to terminate your employment.
Q. 'Employer regarded as UK-based' - what does this mean?
In order to stop your employer setting up in low-taxing UK and then sending its employees to France, it must have significant business activities in the UK. If it does not, an interim E101 will be issued. One this has expired, an extension, if required, may be obtained but the employer must show that it has carried out work in the UK or tendered for contracts in the UK in the meantime.
Q. 'Significant business activities' - how do they decide whether my employer has this?
The Inland Revenue employs various criteria, including:
* the number of staff in the UK compared to the number in France;
* the place where the majority of contracts with clients are made; and
* the law governing contracts the employer makes.
They have a broad discretion in this area so the above list is only indicative of what they will look at and certainly not exhaustive.
Q. OK, so if my employer is UK-based, and I go to France to work, I pay UK NICs while I'm there, however long?
No. The general rule is that you pay contributions in the country in which you work, irrespective of where your employer is based.
Q. What about if I reside in the UK - say, in Dover - and commute to France every day for work?
It's an unlikely case but even then you will be insured in France. It doesn't matter where you reside. (Of course, this case is far more likely to arise where two member-states of the EU are contiguous and speak the same language - for example, Germany and Austria.) Workers who work in one country but reside in another are called Frontier Workers.
Q. But I thought you said I could work in France and pay in the UK.
I did. This is the important exception, which could save you and your employer large sums. Supposing your UK-based employer, for whom you have previously been working in the UK, sends you to its French office for a period. If this period is intended to last less than 12 months, you continue paying NICs in the UK, even though you are working and residing in France.
Q. Why this exception?
Because it wouldn't be practical to change the regime for people who are going to work abroad for such a short period.
Q. Won't the French demand cotisations anyway? How will they know that I'm only there for a short time?
You have to get a form E101 from the Inland Revenue. (Most forms are linked from www.inlandrevenue.gov.uk/cnr/osc.htm#1.) The employer applies for this - don't forget, he stands to save more in contributions than you do by remaining within the UK system. The Inland Revenue then issues you a certificate confirming that you remain within the UK NI system and that no payments need be made in France. If the French make a demand, show them the certificate. Be aware that you may still be taxed on income, etc., in France. This is outside the scope of this Q&A.
Q. What are forms E104, E106 and E128 ?
In addition to the E101, these forms may assist you in claiming benefits in France. The E104 sets out your national insurance record in the UK, which may be useful in claiming benefits in France whenever an established UK NICs record is necessary. Forms E106 and E128 provide healthcare cover abroad for you and any family members who accompany you for the period of your employment in France. The E106 is usually issued where the job abroad is more than 12 months at the outset. The E128, by contrast, is usually issued where the job abroad is less than 12 months at the outset and covers the same period as form E101, so should be obtained with it. However, remember that once the E101 has expired, so does the E128.
Q. What happens if I'm in France for longer than 12 months?
If unforeseeable circumstances force you to remain there, you can apply to the French authorities for an extension of up to a further 12 months, but no longer. This covers where, for example, you've been sent to oversee a project, which is supposed to last for ten months but stretches on to fifteen. Your employer has to submit this request on form E102 before the end of the first 12 months. The French authorities may not agree - for example, if they think that your intention was always to stay for more than 12 months. In that case, upon expiry of the E101 you become liable to French cotisations. If they do agree to an extension a further E128 will be issued.
Q. Supposing I'm sent to France to replace a colleague who's coming back to the UK at the end of his 'tour of duty'. Am I still able to pay NICs in the UK?
No. The periods spent abroad are cumulative. This means that if you are filling the same role, you are treated as the same person and have the same time allowance.
Couldn't I work in France for 12 months, return to the UK to work for a time, and then go back to France for a further 12 months?
Even as someone normally working in more than one state at a time, which is what you would effectively be doing, you would still only be insured in one state. If you regularly work in the UK and France, you are insured in the country in which you reside. In this case you would reside in France as you normally live there.
Q. Why do you use the word 'reside'?
Because it has a specific legal meaning. Let's assume that you are ordinarily resident in the UK, in that any time you leave the UK you have a definite intention to return. You will then only become resident in France if you normally live there and you have a settled and regular way of life there. Being indefinitely employed to work in France means you are resident there. This seems to be why, for example, no stay can be longer than 12 months except in unforeseen circumstances, and only then with permission.
Q. Are there no exceptions to this? Supposing I'm a leading expert in my field and my presence in France will be of great benefit to the French?
The French and the UK authorities can agree either to extend your original period in France to a maximum of 5 years, or to an initial period of more than 12 months, while you remain within the UK system:
* in exceptional circumstances; or
* if you have some kind of special knowledge and skill in your job; or
* if your employer has a special job for you in France; or
* where it is in your interests for you remain within the UK system.
Q. Are all jobs treated in the same way?
No. Exceptions include civil servants, diplomats and members of the armed forces, who remain insured in the UK, for however long they are on a tour of duty abroad.
Q. OK. I go to France to work for less than 12 months (barring unforeseen circumstances) and continue to pay NICs in the UK, under form E101. Since I'm not paying cotisations in France, what are my rights?
Let's divide this into UK rights and French rights. Some UK rights continue while you are in France. It is important to note that you may not qualify for the same level of rights in France as a Frenchman if you do not pay cotisations there.
Q. Which UK rights continue in France?
The following may, subject to your circumstances:
* Jobseekers' Allowance - subject to detailed rules, the most important of which is that you must have been getting it before you leave the UK;
* Maternity benefits;
* Statutory Sick Pay;
* Incapacity benefit;
* Winter Fuel Payments; and
* Widows' and bereavement benefits.
Q. Which French benefits will I get if I pay NICs in the UK?
No application for a benefit can be refused solely because you are not French. Nor can there be any requirement, which indirectly discriminates against foreigners. The rules governing exactly what you can get cover several pages, but in essence, your UK NIC payments might be taken into account in France's assessment of whether, and to what extent, you are entitled to French benefits. Most importantly, the EU Regulation overrides domestic residency tests, whether in the UK or in France. Therefore, in general, you do not have to fulfil any residency requirements before you can get benefits.
Q. Can I get unemployment benefit in France?
Only if you have paid some cotisations in France. Therefore, if you have only ever paid UK NICs, you cannot get this benefit. This is to stop so-called benefit tourists from going to the most generous country to claim.
Q. Can you summarize the system?
I'll try. Assuming you are not a Frontier Worker, and you have been posted abroad by a UK employer for a period foreseen to be 12 months or less, you remain insured in the UK. Although you are not therefore resident in France, you are entitled to all French benefits in kind, except unemployment benefit. You can apply for a further period of up to 12 months if the first 12-month period is insufficient. If you stay for longer than the original 12 month period plus any further period you may be granted, and continue to be employed, you have to start paying French cotisations.
Q. If I have to pay French cotisations, is there any saving grace?
Yes. You will probably be French resident, so your tax position may be more beneficial than in the UK. Take advice on this - you may save more than you pay for the advice. Your employer may be less circumspect at having to pay French cotisations.
Q. What about if I'm self-employed?
Broadly, the same rules apply as to an employed person.
If you are:
* normally self-employed in the UK; and
* go to work in France for less than 12 months;
you can continue to pay in the UK. Form E101 must be completed, as must form E102 if you wish to extend your stay. If you are normally self-employed in the UK and France, you pay where you reside.
Please note that taxation and national insurance is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
Sykes Anderson LLP is able to assist in planning to reduce French cotisations. Further information is available from Saul Brownstein - firstname.lastname@example.org - in our French tax and property unit. He can also be reached via 020-7398-4700.
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Conversation with Saul Brownstein, solicitor and tax adviser at Sykes Anderson LLP, concerning a UK national and resident going to work in France Please note specifically that...