Contractors Seek Work Overseas; The Consequences of IR35

The off-payroll working rules (IR35) have confused the picture for contractors, and a new study by IPSE (the Association of Independent Professionals and the Self-Employed) has uncovered some of the consequences of the legislation.

Almost a quarter of contractors intend to seek work overseas to escape IR35 rules, according to the research. What’s more, over half (55%) have turned offers of work down in the last year because it was deemed as ‘inside IR35’.

However, the increasing popularity of remote working (for both contractors and clients) has opened up new opportunities for the self-employed.

Let’s take a closer look at the tax implications of working for overseas clients and what you need to know.

Tax considerations when working with overseas companies

If some or all of your income derives from working with overseas companies you need to be aware of the following tax considerations.

Your tax residency

Typically, working with an overseas company does not affect the UK tax residency of a British contractor, but it’s still the most important issue to check off first.

If you’re working fully remotely for a non-British organisation—and your permanent residence is the UK—there’s no impact to your UK tax residency, while days spent outside the UK won’t impact your UK tax liability either. If you spend a week working on-site with the client you will still have to pay tax in the UK on that income. You would have to be based abroad for an entire year for your UK tax residency to be affected.

Your tax residency status in the client’s country

Less clear is your tax liability in the client’s country, but again only if you physically spend time in the country. For example, a contractor would become a resident in Switzerland after working in the country for just 31 days or more.

The best thing to do is check your tax liabilities with an experienced tax advisor as they will be able to advise on what you’re going to owe (and where).

Certification of tax residence

You may need to provide your overseas clients with a certificate of tax residence. 

Without evidence of your tax status, many states will not apply tax treaty provisions such as 0% or reduced rates of ‘withholding taxes’ (WHT). The client would therefore be obliged to apply the standard rate of WHT from your invoices.

Consult the experts to stay tax compliant

Managing your taxes as a sole trader can be complicated, particularly if you’re doing some of your work for clients outside of the UK. If you’re required to provide additional information or documents it can take hours of admin time to get everything together—time you could spend working for your clients and earning money.

To ensure you’re not stressed out and overwhelmed every January, the best thing to do is seek the advice of professional tax accountants.

Here at Warr & Co we provide expert tax advice to businesses of all sizes, as well as contractors who want to simply focus on the thing they do best: serving their clients.

So if you’re a contractor working as a sole trader or operating as a limited company, enquire today about our business accounts and tax services. As well as ensuring you fully meet your tax obligations we will conduct a full review of your financial and management systems, identifying potential issues and opportunities for improving financial performance.

Get in touch with the team today, simply complete the form below.