UK contractors often have clients who request that they work overseas or secure clients who are based overseas. This can be a difficult issue when figuring how this leaves them in terms of the UK tax system.
Those who are subject to the IR35 regulation often worry about the implications of working for clients abroad but the reality is that this is just a small part of the concerns.
The IR35 is a UK tax policy and as such only applies to those are living and working within the country. This means that it is no longer a question of whether or not a contractor is IR35 compliant but rather brings in to question whether or net they even allowed to work overseas at all.
183 Day Rule
A common way for contractors to look at the so-called “183-day rule” is that it means that they are able to work abroad for as much as 6 months through their UK company and still claim to be UK residents/workers. In this circumstance, they assume, correctly to a certain degree, that they will be paying the taxes due in the country of their destination. However, the OECD which governs this states that whilst this may be the case that you are liable for the taxes of the country where the actual work takes place, this is not the case if the wages you are paid for performing this function are paid by an individual or company that is not a resident of that particular nation. For example, if an English company hires a contractor to perform a job in the United States, you would not be required to pay United States tax.
Who is the Employer?
The problems that come from a contractor working through a UK limited company is who is the employer of the contractor? Is it the limited company through which they work or the client who has hired them to perform a task?
The majority of countries determine the employer not to be the person or company who is playing the actual contractor but rather the person who is paying for the actual job. So if you are a contractor working through a UK limited company abroad and are paid by an American company, even though the UK limited company would be paying your wages, it is the American company that is hiring you/your company that would be classed as the employer.
As you may already be aware, contracting overseas isn’t as simple as just accepting a contract and moving over, it can be a complicated process so it’s important you take professional advice whether from independent firms or your umbrella company.