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Introduction
First of all, what do you need to think about if you are planning to or going contracting abroad? You might be IT contracting (UK) day-to-day or contracting in another industry when you come to consider contract work abroad. In addition to contracting in the UK, some UK contractors may decide they would like to try contracting overseas. When you working as a contractor overseas it will have benefits, such as better weather. In addition, in some cases when you perform some contract work overseas, you will have the opportunity to sample foreign cultures.
Some limited company contractors may ask themselves should I work abroad? Some will also ask should I work through my limited company when working overseas, as opposed to working abroad on overseas contractor payroll?
If you have the chance to do some overseas contracting, you may be given a three-month contract, a six-month assignment or perhaps a contract for even longer. Then again, you may be asked to work abroad for a month. Therefore, what are the various considerations around working abroad as a UK limited company contractor?
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:
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Working abroad for a UK company
This would be where you are performing the UK work abroad, but the client is based in the UK. 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.
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Working abroad for a foreign company
This would 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 they do 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. An alternative to this to finding overseas contracts is for you to look for yourself for contract work abroad by visiting the various recruiters and job boards.
Initial thoughts -contracting abroad
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, 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 work abroad if you work through your own limited company. Alternatively you could do this through an umbrella company 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.
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 as tax-deductible business expenses? If the answer is yes, what sort of expenses can you claim? Any such costs could indeed add up when you are working abroad. Therefore, it is good to know which expenses will be tax-deductible.
A good contractor accountant will help you operate tax efficiently. They can also advise you on what to consider if you work abroad. 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 abroad
As a business owner with your own UK contractor limited company, you should know the rules when claiming an expense back home in the UK. These 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.
When you are going to do some contract work overseas or you undertake a foreign business trip, the types of costs that you can claim when contracting overseas will be:
- Flights.
- Accommodation costs.
- Business travel.
- Meal costs.
There are also benchmark rates available (see below). In addition, you can also claim Personal Incidental Expenses (PIEs) at £10 per night when you work abroad.
We also have a separate guide that covers relocation costs. This covers where you are moving your primary place of residence.
Contracting abroad -further tax thoughts around your expenses
As part of working abroad, the same principles above apply regarding claiming your expenses. Therefore, when you incur any expenses, 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.
Moreover, while you are away, you can experience the different food and drinks. Please note, though, that the taxman is on the lookout for any expenses that are not exclusively for your business. The taxman is on the lookout even more, when you work abroad compared to your UK expenses.
In addition, 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.
Performing contract work abroad -what to bear in mind
Initial thoughts 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.
Contracting abroad -further things to think about
When you incur expenses while working abroad, 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. 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.
HMRC’s benchmark rates
HMRC has benchmark rates for most countries worldwide when you do contract work abroad or work overseas. This includes all major cities and it is important to note that these benchmark rates are not fixed-rate allowances. 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.
Contracting abroad -the 24-month rule for contractors
You should also note that the usual 24-month / 40% rules apply when you do contract work overseas, just like when you work in the UK. Under this rule when working as a contractor overseas, you should not expect to be travelling to a worksite for longer than 24 months. This rule provides that you spend more than 40% of your working time at the site.
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. If the client pays your invoices to your UK bank account, you will likely be hit with:
- Standard bank charges.
- 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, and when you transfer the funds with your bank between your foreign and £ Sterling account, the overall charges will be much less.
IR35 status
As with all work you perform as a UK contractor, you need to be aware of your IR35 status. If you are working 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.
Contracting abroad or working overseas -additional tax considerations
When 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 for prolonged periods, there may come a time when you are no longer a UK tax resident. The UK residency rule is not straightforward, and there are various tests to apply before determining someone’s UK residency status.
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. This is because your tax situation could become much more complicated. 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 tax in the country you are in now after a certain period of time.
Therefore, when your future 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.
Do I need to tell HMRC if I am going to live/work abroad?
When you need to inform HMRC
Important to note, 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 as they may need to make changes to buildings and contents policies.
Inform HMRC
In addition, 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. Please also note 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. Please note, 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).
Contracting abroad and buying goods from overseas
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.
Please note 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.
Final thoughts
As you can see, 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. There are also other factors to consider if you work 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
