IR35 guide for overseas contractors and end clients
Does IR35 apply to foreign contracts, or when working outside of the UK? That’s a question we’re often asked at Kingsbridge. The HMRC off-payroll (OPR) working rules for contractors and freelancers are full of grey areas. If you’re working outside the UK or your end client is based overseas, that can add extra layers of complexity.
Clarity is urgently required—and we’re equipped to provide it here at Kingsbridge. Andy Vessey, our Head of Tax, has been a leading authority on IR35 since it was introduced in 2000 by HMRC. He has successfully defended more than 500 IR35 enquiries—winning almost all of them. So, in this article, we’ll use our expertise to establish the facts about IR35. Then we’ll show you how working abroad or working for an overseas end client can impact a contractor’s IR35 status.
What is IR35?
The off-payroll (OPR) working rules ask a simple question: are you a contractor or a disguised employee? The rules are designed to stop disguised employees gaining a tax advantage operating via a Personal Service Company (PSC) by taxing themselves as “Outside IR35” when undertaking a role that should have instead been defined as being “Inside IR35” – in effect working akin to an employee.
“Inside IR35” means that your end client, in the context of the new off-payroll (OPR) rules, considers you to be working as an employee. Thus, you should pay the equivalent to PAYE tax plus national insurance contributions. “Outside IR35” means that your end client considers you to have legitimate contractor status.
How did IR35 change in 2021?
Before 2021 in the private sector, contractors were responsible for determining their own IR35 status and answerable to HMRC for the decision. After the reform, all medium and large companies (as defined by the Companies Act 2006) became responsible for determining the status of any contractors they use.
However, contractors working with small companies still determine their own IR35 status.
Contractors based overseas
Does IR35 apply to UK contractors working overseas?
If you are working overseas for an end client that has a UK-based limited company, or you are a UK Tax resident, then the IR35 overseas contractors’ rules are clear. IR35 applies to you wherever you’re working and, as a contractor, it is your end client who is responsible for determining your status, if they are a medium or large company.
Does IR35 apply to contractors who are non-UK residents?
If you’re a contractor who is a non-UK Tax resident, based overseas but providing services in the UK, IR35 does not apply where there is no charge to UK Tax. Instead the contractor should consider whatever similar rules are in place in their own country’s jurisdictions.
End clients based overseas
Does IR35 apply to an end client based outside the UK?
If your end client is based overseas, don’t assume this puts them beyond the reach of IR35. If the organisation has a UK connection, then your end client is still responsible for assessing your IR35 status and paying any taxes and National Insurance contributions due on your earnings.
Even if your end client pleads ignorance of the IR35 overseas client rules, they’re still responsible for complying with them. Most countries have something similar to IR35, so they should at least be aware of the principle.
An example of how this works in practice
Say a freelance IT specialist with a UK-based PSC accepts a contract from Microsoft in France. Microsoft has a UK presence and pays UK tax. That makes it Microsoft’s responsibility to determine the contractor’s IR35 status, and HMRC has the right to challenge them.
Does IR35 apply if the end client is overseas and has no UK branch?
For an end client to be deemed entirely outside the UK, it must have no UK office or branch. If your contract is with such a company, then you are responsible for your own IR35 status.
What if the end client is a smaller company?
If you are contracting with an overseas end client that is classed as a small company, the responsibility is still on you as a contractor to determine your IR35 status. In this situation, the pre-April 2021 reform rules still apply.
What if you’re paid in non-UK currency?
Whichever currency is used, it makes no difference to how IR35, taxes or National Insurance payments impacts the contractor or the end client. Every factor detailed above continues to apply whether payment is in sterling, cryptocurrency or Mongolian tugrik.
IR35 advice for contractors working overseas
Before taking up an overseas contract, it’s vital to speak to your end client and tell them they need to be aware of IR35 obligations. They may not understand their UK tax obligations.
How can you check your IR35 status?
You’ll have gathered by now that being contracted by a non-UK end client, makes it an obligation to determine your own IR35 status. Even if it is a UK-based company, and it is the end client’s responsibility to determine your IR35, you can help them by showing conclusive evidence that you’re outside IR35.
A simple and reliable way to establish your IR35 status is by using the Kingsbridge IR35 status tool for contractors. It’s been developed by our IR35 experts. Unlike HMRC’s equivalent service, the Kingsbridge tool always provides a firm “Inside or Outside IR35” verdict.
Additionally, you’ll receive a report detailing any flaws in your engagement that put you at risk of IR35 issues. You can also protect the party held liable by HMRC from the cost of being investigated by taking out Kingsbridge IR35 insurance.
More reasons to work with Kingsbridge
Our insurance packages are specifically tailored to the unique needs of professionals working as contractors. We have a dedicated team with a deep understanding of how busy contractors and freelancers’ work. Our friendly, responsive service keeps business insurance simple, so you can focus on winning contracts and doing your best work.
We know these are tricky times for contractors, so we guarantee* that you won’t find a better value contractor insurance package. Find out more by using our get a quote service or simply call 01242 808740.