How does IR35 apply when working outside the UK?

One question that contractors are frequently asking via our Ask Andy form is when and how IR35 applies when working outside the UK. We, therefore, thought it would be useful to pull this information into a blog. As is usually the case with IR35, the question is not a straightforward one, and it would depend on the engagement and the client.

It’s important to note that just because you are working outside the UK, you simply cannot bury your head in the sand as IR35 may still apply to your engagement. Depending on your end client, the liability may remain with you to assess your IR35 status and make the payments for tax and national insurance, if you assess yourself as inside IR35. Read on for an overview of some common questions.

WHAT IF MY END CLIENT IS NOT BASED IN THE UK?

If your end client is not based in the UK but has a branch in the UK, no matter how small, then the offshore branch of your end client would be responsible for determining your IR35 status. In the event of this happening, then your feepayer would remain liable for the payment of taxes and national insurance.

If the contract is directly between you and your end client (so they are also the feepayer) then the UK branch of your end client would then be liable for the payment of tax and NI required.

WHAT IF THE OVERSEAS END CLIENT HAS NO CONNECTION TO THE UK?

If your overseas client has no connection to the UK, for example, they do not have a permanent establishment in the UK, then they do not have to consider IR35 at all. Instead, the liability would then revert to you, meaning that you are responsible for assessing your IR35 status and the liability for any tax or NI payments due.

It’s worth noting that if you are residing abroad and are a non-UK resident, then you also don’t have to comply with the IR35 legislation.

DOES IR35 APPLY IF I’M A NON-UK RESIDENT?

HMRC guidance ESM10025 states that: “A client does not need to consider whether Chapter 10/Part 2 rules apply where there is no liability to tax and NIC’s in the UK”, and “a worker who is not UK-resident and is performing work outside the UK is unlikely to fall within the charge to UK tax or NIC’s. If the worker is not chargeable to UK tax or NICs, then the off-payroll working rules will not apply.”

Therefore, if you are working abroad and qualify as a non-UK resident through the Statutory Residence Test, you would not be subject to the off-payroll rules.

WHAT IF MY END CLIENT IS A SMALL COMPANY?

If the end client your contract is with is a small company (as per the Companies Act 2006) then you, the contractor, would be held to the same set of rules as before the reform. To be seen as a small company, at least two of the following must be true:

• Turnover of no more than £10.2 million;
• Balance sheet total of no more than £5.1 million;
• No more than 50 employees.

WHAT IF I’M PAID IN FOREIGN CURRENCY?

Just because you are paid in foreign currency, it does not mean that you would be excluded from IR35; being paid in a foreign currency won’t affect who is liable for payment of any tax or NI.

It’s quite common for you as the contractor to be responsible for any conversion charges with your payment, but your contract should state how this operates for your engagement.

HOW DO I CHECK MY IR35 STATUS?

As the above shows, there are still situations when you need to ascertain your IR35 status yourself. And even if the responsibility is with your end client, being able to show a comprehensive IR35 report of your working practices can help to swing your status determination statement in your favour.

One option you could look at for assessing your IR35 status is Kingsbridge’s award-winning IR35 status tool. Developed by our very own Head of Tax, Andy Vessey, the tool has been designed to take a complete view of your IR35 status.

For just £50 plus VAT, you will get an instant inside or outside determination. In the event of an indeterminate result, it will be passed over to our expert IR35 team for manual review. Once your result has been given, you will receive your IR35 report, which will highlight the strengths and any weaknesses of your engagement.