Cross-Border tax rules putting off employers and workers, says report

More than two-thirds of employers on the island believe workers with the skills they need can be found on the other side of the Border, but just a third are confident they can manage the cross-Border tax challenges involved.

“The potential of the all-island labour market is still not being fully realised,” according to a report by Dublin-based employers’ group Ibec, the Confederation of British Industry and recruitment firm Hays.

Administrative hurdles are causing major problems, with a lack of clarity about tax, pension and welfare rules and dual payroll obligations complicating life for both employers and employees.

Some 46 per cent of workers would consider a cross-Border job, particularly for better pay and better opportunities – but many are being put off because the taxation systems on the island are not aligned.

“Businesses still face a web of tax, payroll, social insurance and visa rules, alongside practical pressures for employees, which include transport links and housing affordability.

“These barriers have real consequences; businesses say they make skills shortages harder to fill, reduce labour-market flexibility, and result in lost talent,” said the authors of the report.

“At a time of acute skills pressures and rapid technological change, we cannot afford to leave talent untapped. A more connected labour market can build capabilities for both jurisdictions, across the all-island economy.”

Fifty-three per cent of employers across the island are now calling for tax alignment between HM Revenue and Customs for workers in the North and Revenue in Dublin.

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However, employees interested in cross-Border moves for better pay and opportunities put the daily cost of commuting as a bigger concern ahead of tax challenges and poor transport links, according to the Hays survey.

More than 550,000 jobs have been created on the island since 2019, though there are “early signs of cooling”, with a quarter of employers – both SMEs and larger firms – anticipating “a tightening market over the next 12 months”.

Nevertheless, half of all employers are finding it difficult to find the people they need for key roles, while more than 69 per cent believe the specific skills they need “already exist in the neighbouring jurisdiction”.

“Our findings reveal a workforce with a strong appetite for cross-Border mobility, driven by the prospect of better career progression and higher wages,” the report states.

“For businesses, an interconnected labour market offers a tangible solution to pronounced skills gaps, unlocking access to a broader, highly capable talent pool.”

Tax rules, however, create the “most complex barriers” for employers and employees, and a lack of clarity about their implications holds them back from considering or offering cross-Border work.

The issues have become even more complicated in the post-Covid world, where many employers and employees say they do not understand the rules governing remote working.

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Top-up tax bills disproportionately affect employees in the North working in the Republic, though people from the south working north of the Border benefit from Transborder Workers’ Relief rules.

Under that, southern residents avoid some top-up taxes from foreign earnings, but no such relief exists for residents in the North because the UK’s foreign tax credit system does not permit it.