First of all, what should you think about if you are planning to or going contracting abroad? You might be IT contracting (UK) or working as a contractor (UK) in another industry when you come to consider contract work abroad. Besides contracting in the UK, some UK contractors may decide they’d like to try out contracting overseas work. When you are working as a contractor overseas and performing IT contractor work or other types of contracting work, this will have benefits. Indeed, this includes better weather. In addition, when you’re performing some contract work overseas, you have the opportunity to sample foreign cultures.
Some limited company contractors may ask should I work abroad (UK)? Indeed, some will ask should I work through my limited company when working overseas, as opposed to working abroad from UK on overseas contractor payroll?
If you have chance of overseas contracting, you may be working abroad for a month or be given a three or six-month assignment or perhaps even longer. Therefore, when you are working as a contractor for a company whether it is work abroad for a month or a longer period, what should you consider? In this guide, we’ll look at the various considerations around overseas contract work as a UK limited company contractor. What’s more, we’ll consider the various contractor rules and tax implications when you are from the UK working abroad. Furthermore, we’ll also look into the following angles of overseas working:
- How to become an overseas contractor?
- Does IR35 apply to overseas contractors?
- Do overseas contractors pay taxes?
- The taxes for overseas contractors.
What’s more, we’ll also take a look at the following areas of working abroad tax:
- IR35 & overseas client implications.
- IR35 & overseas contractors’ considerations.
- Where do you stand if you are an IR35 non-resident.
Initial thoughts -working or contracting overseas
What to think about first
In a worldwide economy, many projects will exist with working team members spread across the globe. Therefore, as an alternative to UK contracting, you may have a chance to contract abroad through your business. When you undertake some contract work overseas (UK company), you can experience different tastes and new cultures.
You will jump on a plane if you land a contract in a foreign country. As a result, you will meet up with an overseas client face-to-face when you get there.
You may also be asked to perform contractor work abroad if you work through your own limited company. Alternatively, you could work through an umbrella company for an overseas contract or even if you are under PAYE as a full-time employee. If you do go ahead and work abroad, your employer will advise what you can claim as your expenses. However, you may be able to claim for more than what your employer allows through your tax return. You can do this if your employer does not cover what you could ordinarily claim while working away.
For those that are thinking about working for a company abroad, some common thoughts and questions may arise. Therefore, these include:
- Can I work for a UK company and live abroad?
- Do I pay tax if I work abroad?
- Can I work abroad for a UK company?
- Does IR35 apply if I am working overseas?
- Does IR35 apply to foreign companies?
In this guide, we will consider the above and look at the various considerations when you work abroad overseas. What’s more, we will also consider can you work for a UK company and live abroad. In addition, we will look at the UK tax working abroad (HMRC rules). Further still we’ll venture into IR35 and foreign tax implications, when you are working outside of the UK in a foreign country.
Two potential scenarios when you are working as a contractor overseas
What are the initial considerations for a UK limited company contractor who performs contracting work overseas? There are two possibilities when you are performing contract work abroad through your limited company:
Working abroad for a UK company
When you work this way, it will be where you are performing the UK work abroad, but the client is based in the UK. Indeed, the UK company will pay you in Sterling therefore this area should be straightforward. This is in comparison to when working abroad and contracting for an overseas company.
Working abroad for a foreign company
As part of this work, it will entail you working as a contractor for an overseas company. When you are contracting with a foreign company, they will probably pay you in their local currency. Therefore, you may need an account with your UK bank in a foreign currency. This is so that your bank does not hit you with high charges converting foreign currency to Sterling in respect of payments from your overseas contract. Please see later in this article for more information on this area.
How to get contract work overseas?
When it comes to considering how to get a contractor job overseas, you may be asked by your current client to undertake an assignment for them abroad. Alternatively, if you would like to obtain contract work from a foreign country you will need to look into overseas contracts.
Basically, you could search for contract work abroad by visiting the various recruiters and job boards. Indeed, when you do this, you can look for overseas contractor jobs or contracts overseas. Alternatively, you could go online and search for the following terms:
- Overseas contracting companies.
- Overseas contract companies.
- Contracting companies overseas.
- Contract companies overseas.
- The best overseas contracting companies.
Your expenses while working as a contractor overseas
Claiming your contracting costs when working abroad
When you are working overseas as a contractor, can you claim your costs in relation to this contracting work? In addition, will these be tax-deductible business expenses? If the answer is yes, what sort of expenses can contractors overseas claim? Any such costs could indeed add up when you are contracting overseas. Therefore, it is good to know which expenses will be tax-deductible when you are a contractor working abroad.
A good contractor accountant will help you operate tax efficiently. Therefore, when planning to work overseas, contractors with a good accountant can plan ahead. Their accountant can advise them what to consider and what they can claim when working abroad as a contractor. In this article, we will go over the rules that cover this and what you need to think about here.
The rules for claiming expenses when contracting overseas
As a business owner with your own UK contractor limited company, you should know the contractor rules when you claim an expense back home as part of when you perform contract work (UK). When you are contracting in UK, the rules are as follows:
- It must be `wholly, exclusively and necessary’ for your business; and
- You should obtain and retain receipts just in case the taxman ever asks to see these in the future.
As an alternative to contract work in UK, you may be going to do some contract work overseas or undertake a foreign business trip. Therefore, the types of contracting cost that you can claim when contracting overseas will be:
There are also benchmark rates available (see below) when you perform overseas contract work (limited company). In addition, contractors working abroad can also claim Personal Incidental Expenses (PIEs) at £10 per night.
We also have a separate guide that covers relocation costs. Basically, this covers where you are moving your primary place of residence.
Further tax thoughts around your expenses when you are contracting overseas
As part of contracting overseas, the same principles above apply regarding claiming your expenses. Therefore, when you incur any expenses during overseas contract work, it is key that they are `wholly, exclusively, and necessary.’ Please remember that you always need to ask for a receipt when you pay for an expense. Your receipts should be kept with your business records.
While you are away, you can experience the different food and drinks. However, the taxman is always on the lookout for any expenses that are not exclusively for your business. When it comes to HMRC & working abroad, the taxman is on the lookout even more. This is especially when you contract or work abroad, compared to your UK expenses.
Where there is a duality of purpose, a cost is not an allowable one. `Duality of purpose’ means a mix of business and personal elements is included in an expense. Therefore, you cannot claim this. In this instance, it could mean you were taking a week abroad for a holiday with only one day or part of one day meeting a potential business contact.
Only claim for your genuine costs when working as a contractor overseas
First, we would not advise you to mix business trips with holidays. If a contractor delays his return home to spend a few days on the beach or spend some time sightseeing, he cannot reclaim any of the costs as a business expense. Likewise, if the contractor takes his wife and she spends her time in the hotel spa while the contractor is meeting with the client again, he cannot claim the cost as a business expense. This is because a `duality of purpose’ has been established.
The best method that you can use to avoid any confusion is to book the business and personal-related expenses one by one. If the contractor books separately, both the:
- Outward and return flights; and
- Business and personal elements of the hotel stay.
As a result, they can claim for the outward and return flights and hotel stay related to the business element and pay for the other costs personally. Likewise, if the contractor books their trip and the spouse books theirs separately, the contractor can claim for their expenses.
Please take account of the above as these are key when claiming for such costs.
Indeed, this may all seem quite over the top. However, these are HM Revenue & Customs (HMRC) rules. When you have a receipt or invoice that includes spending for a personal benefit, you cannot claim for it.
HMRC’s benchmark rates for travel costs
The tax office (HMRC) has benchmark rates for most countries worldwide when you do contract work (limited company) abroad or work overseas. Basically, this list of local overseas allowance rates includes all major cities. Furthermore, it is important to bear in mind that these benchmark rates are not fixed-rate allowances. In addition, you can only claim for the amounts that HMRC sets if you incur expenses that cost up to those amounts.
The worldwide benchmark rates can be viewed here.
What else to bear in mind when performing contract work abroad
Receiving payments from a foreign customer
When your customer or client is abroad, you should seek professional advice from your accountant as to whether your business should charge the customer VAT or not. The reasoning is that the rules regarding charging customers abroad can depend on the place of supply (of your work) and other factors.
Secondly, when contracting overseas you may currently have work in a place with a foreign client, and they will be paying for your services in a foreign currency. Therefore, you will need to consider your banking arrangements for your limited company invoicing abroad. Basically, if the client pays your invoices to your UK bank account, you will likely be hit with:
- You will also be given lower exchange rates on contractor payments than the actual market rate.
The secondary point above can mean quite a difference in what your business would have received before the conversion.
Therefore, when you have a foreign paying client, it is a good idea to set up a bank account (with your current bank) in the currency you are being paid in, e.g., Euros, USD, etc. When the money comes in, you will not be hit with a foreign exchange cost. In addition, when you transfer the funds with your bank between your foreign and £ Sterling account, the overall charges will be much less.
Contracting abroad -the 24-month rule for contractors
As a contractor, you should also be aware of the 24-month / 40% rules. Basically, this applies when you do contract work overseas, just like when you work in the UK. Under this rule when working as a contractor abroad, you should not expect to be travelling to a worksite for longer than 24 months. If you do exceed 24 months, the rule does not apply if you spend less than 40% of your working time at the work location.
Other tax issues -overseas contractor taxes
As with all work you perform as a UK contractor, you need to be aware of your IR35 status when you work in the UK. In addition, this also applies when you are working for a UK company from abroad. Basically, IR35 are a set of contractor rules and if you are working in the public sector or for a large or medium business in the private sector, it is their responsibility to determine your status. However, if you work for a small business, the IR35 rules do not affect them. As defined by the Companies Act 2006, an entity is a small business where it meets two of the following criteria:
- The annual turnover is no more than £10.2 million.
- The total of fixed and current assets (before deducting current liabilities, long-term liabilities and deferred tax provisions) is not over £5.1 million.
- There are more than 50 employees.
Therefore, if you are working for a UK company while living abroad and the client is a small business you need to check your IR35 status. As part of working from abroad for a UK company IR35 status check, you can ask your accountant for advice. Alternatively, you can arrange a contract review with a firm such as Qdos.
Does IR35 apply to overseas contracts?
When UK contractors end clients are overseas contractor companies, they should not assume that this places them outside the reach of IR35. Basically, when we consider IR35 for overseas contractors and IR35 foreign company implications, if the foreign business has a UK connection (such as a UK office or branch), then the end client is responsible for determining the IR35 status and paying any tax and NI due on a contractor’s earnings. If it is the case that your end client says they are unaware of the IR35 overseas client rules, they’re still responsible for complying with these rules.
Indeed, most foreign countries have some rules similar to IR35. Therefore, they should at least be aware of the principle. When your end client is deemed entirely outside the UK, it must have no UK office or branch. Therefore, when your contract is with such a foreign company, you are responsible for determining your own IR35 status.
If you’re a contractor and a non-UK resident, who is based overseas and providing services in the UK, IR35 does not apply when there is no charge to UK tax. Instead, you should consider what rules exist in your own country of residence’s jurisdiction.
Additional tax considerations when you are contracting abroad or working overseas
When we consider the working abroad UK tax implications and you are UK based and work through a UK company, you and your company will pay UK tax and National Insurance contributions. However, in contrast to UK working, if you live and work abroad from UK for prolonged periods, there may come a time when you are no longer a UK tax resident. When you are living and working overseas, the UK residency rule is not straightforward. Indeed, there are various tests to apply before determining someone’s UK residency status. In addition, after a period of time, the company that you work for abroad might decide to pay you via their overseas contractor payroll. Such a salary would be paid to you personally rather than to your company and it would be subject to foreign taxes in that country.
Seek professional advice
As a professional with your own contractor limited company, you may live and work in a foreign country and have been there for a while. When this is so, the best course of action is to seek specialist advice from a contractor accountant. You can ask the about your working overseas tax situation. Indeed, this is because your tax position could become more complicated in terms of a UK resident working abroad tax implications. The tax implications could mean you are no longer a UK tax resident. When you are a non-resident, you are no longer subject to UK tax law. Furthermore, depending on the country you are working in, you will become a resident and be liable to pay working overseas tax in the country you are in now after a certain period of time.
Therefore, when you receive an overseas contractor salary and your tax liability arises in the country where you are based, you will pay taxes under that country’s tax system. In this instance, when you know you will be taxed in the country you are now in, you will need to seek tax and planning advice from an accountant who is based there.
Contracting in UK from abroad
If you move to the UK from a foreign country and begin contracting here, after a while you will become UK tax resident. As a result, you will be subject to the UK tax rules. In addition, you may still be subject to tax reporting in your former country, therefore you should check on your tax position there. For example, you could be a US contractor working for UK company, and have recently moved to the UK. Consequently, the best steps to take would be to appoint a UK contract accountant to look after your UK side. In addition, you should make sure you also check out any USA tax reporting responsibilities.
Do I need to tell HMRC if I am going to live/work abroad?
When you need to inform HMRC
When the time comes, you must inform HMRC if you are either:
- Leaving the UK to go live abroad permanently; or
- Going to work abroad full-time for at least one full tax year.
Inform your mortgage provider
Another important thing to remember is if you are going to rent your UK home out while abroad, what do you need to do? If you have a mortgage, you should check this with your bank to see if they are ok with this. You should also check this with your insurance company. This because they may need to make changes to buildings and contents policies.
When you move abroad, you should look up the non-resident landlord scheme (NRLS). Under current UK law, UK lettings agents are obliged to withhold basic-rate tax due on rental income, before they pay it to a UK landlord who is based overseas. Furthermore, you will be considered as a non-resident landlord and therefore come under the NRLS, if you live outside the UK for more than six months. However, if there is no letting agent, your tenant will have to withhold the tax, and pay it over to HMRC if the rent is greater than £100 a week.
If you do not want the letting agency to deduct tax from your rent, you have to send in form NRL1 to HMRC. You can do this either online or by post. Certainly, it is worth doing this if you do not expect to be liable for UK tax on your income i.e., your UK personal allowance covers your rent, and you have no other or minimal UK taxable income.
When you are a non-resident landlord, you will need to complete a UK Self-Assessment tax return each year. On this you will declare your UK rental income (and any other UK taxable income).
Buying goods from overseas when working or contracting abroad
When you are contracting overseas, you can take advantage of the lower prices for goods. This will be the case if you pay the correct taxes. The goods will include things such as laptops or other pieces of equipment.
It is the case that most foreign countries have facilities for people who travel to reclaim the sales tax. They can do this either when they buy the goods or when they leave the country. Therefore, when you return to the UK, you declare the asset and pay any applicable VAT. You can claim this VAT back on your next VAT return if registered and operating under the standard/normal VAT scheme.
Further things to consider regarding your foreign costs
When you incur expenses while contracting overseas, please treat the foreign costs just like you would when you spend back in the UK. Therefore, please keep the receipts and claim the whole amount back.
Further to the above, HMRC will approve certain business expenses when it is clear that it was for a business purpose. Indeed, this will be a purpose that motivates the cost and no other clear purpose. Moreover, HMRC will unlikely dispute a claim if there is a minor personal element to a business trip, such as sightseeing in their spare time. HMRC will challenge expenses when they have a reason to believe an expense has a dual purpose; therefore, please be careful.
As you can see, in comparison to UK contracting, there are many aspects to working as a contractor overseas. There are also specific tax rules to bear in mind when you perform contract work abroad. Within this guide, we have looked at lots of areas to consider including when foreign taxes may come into play as well as IR35 working abroad implications. In conclusion, there are various factors to consider if you perform overseas contract work (limited company) or work as an employee outside of the UK for an extended period. In these cases, you will be the best place to consult your contractor accountant or a foreign accountant.
Link to Contractor Advice UK group on