Overseas contracts and being inside IR35: Ask Andy Answers
With just over five months until the launch of the IR35 private sector reforms, many contractors, recruiters and businesses have burning questions about what the reforms mean for them. And now is just the time to be asking them since there’s still room for you to get things organised and make any changes you need to make before the legislation changes.
To help with this, Kingsbridge’s Head of Tax, Andy Vessey, has been taking your questions and answering as many as he can right here on our blog. Andy has more than 20 years’experience working with IR35 legislation since its inception, and he’s successfully defended more than 500 cases against HMRC. So, he really is the man to ask.
This week, he’s answering questions on how overseas contracts affect IR35 status, and what to do if you suspect your contract falls within IR35.
I perform consulting contracts through my own company in the UK and also abroad. If services are provided abroad and fees are paid into my UK business bank account from an overseas entity (i.e. not going down the ‘tax free’ route, rather, I pay all my UK business tax dues) then I assume this illustrates that I am a bona fide consultant? (As I am, and I behave as such).
IR35 does not apply in circumstances where there would be no ordinary liability to PAYE, i.e. where the worker is non-resident and the work is performed outside the UK.
If, therefore, you would be deemed non-UK resident by reference to the tests laid down by the Statutory Residence Test then IR35 should not apply. However, if you are a UK resident because you do not spend enough working days outside the UK, then you have to consider whether or not your company’s contract falls outside or inside IR35 in the normal manner.
There’s a lot written about what to do if you believe you’ve been incorrectly placed inside IR35, but what should you do if you believe you have been incorrectly placed outside IR35? I’m concerned that I currently should be inside IR35, but it suits my client, in terms of costs, for me to be outside.
If you consider your company’s contract to be ‘inside’ IR35 then you should indicate this by reporting a deemed payment of salary and paying over the necessary PAYE tax and Class 1 NIC through RTI. However, I would recommend that you have your contractual and working practices reviewed by an IR35 specialist, such as Kingsbridge, to confirm whether or not they agree with your conclusion.
I believe my contracting job actually falls within IR35. I invoice my client and they don’t pay tax. However, I’m expected to work set hours, have my work micro-managed, and I have to ask for time off (both during the day and for holidays). The only equipment I have is a PC although I paid for the software I use. I am expected to do the work myself, not to delegate to anyone else. I’m also expected to be in constant contact, and I work from home. I have a contract for a number of months at a time.
Is there any benefit to me either under the current situation, or after the IR35 legislation comes in? What should I do to move forward?
While what you have divulged about your working practices may seem to suggest you are correct in your assumptions, there are a number of other employment status tests to be considered. An IR35 specialist such as those at Kingsbridge can also make recommendations to improve your IR35 position, provided these are realistic and attainable.
If your client is a medium or large-sized business, then they will be responsible for determining your employment status as of 6th April 2021 – so any improvements that can be made to your contractual and working practices now could help secure an ‘outside’ IR35 determination later.
How to ask Andy…
We’ve set up a helpful form to allow you to ask Andy your IR35 questions, however big or small. You can find it right here, so fire away and Andy will do his best to answer as many questions as he can. All details will, of course, be kept in the strictest of confidence.
If you’re reading this blog, it probably means you’re in the midst of preparing for IR35 as we speak. If that’s the case, remember to check out Kingsbridge’s IR35 Protect insurance. What makes it unique is that it flexes to cover whoever holds the tax liability within the contractor supply chain.
So, if you hold this insurance, you can tell end clients or recruiters – whoever the fee payer is – that they are covered, protecting them from risks associated with IR35. What’s more, the cover gives you access to IR35 status reviews by Kingsbridge’s panel of experts, so you can have confidence in your determination.