Contracting overseas and working abroad

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Introduction 

First, when running your own company as a UK contractor, what should you think about if you’re going to be contracting abroad? When considering contract work abroad, you might be IT contracting (UK) or working as a contractor (UK) in another industry. Besides contracting in the UK, some UK contractors may try contracting overseas work. When you’re working as a contractor overseas and performing IT contractor work or other types of contracting work, that’ll have benefits. Indeed, this includes better weather. In addition, when you’re performing some contract work overseas, you can sample foreign cultures.

Some limited company contractors may ask about working outside the UK. Indeed, they will ask whether they should work through their own limited company instead of working on an overseas contractor payroll.

If you have a chance of overseas contracting, you may be abroad for a month, be given a three or six-month assignment, or even longer. Therefore, what should you consider when working as a contractor for a company, whether for a month or a more extended period? This guide will examine the various considerations around overseas contract work as a UK limited company contractor. Moreover, we’ll consider the multiple contractor rules and tax implications when you’re from the UK working abroad.

Initial thoughts on working or contracting overseas

First thoughts

This guide will look at various aspects of performing work in another country. As part of this, we’ll look at 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 look at the following areas of working abroad tax:

  • IR35 & overseas client
  • IR35 & overseas contractors’
  • Where do you stand if you’re an IR35 non-resident?

More initial thoughts

In a worldwide economy, many projects 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 contract work overseas (UK company), you can experience different tastes and new cultures.

If you land a contract in a foreign country, you’ll jump on a plane and meet an overseas client face-to-face when you get there. If all goes well, you can start contracting abroad soon.

You may be asked to perform contractor work overseas if you work through your own limited company. Alternatively, you could contract overseas with an umbrella company or even under PAYE as a full-time employee. If you go ahead, your employer will advise you on 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 doesn’t cover what you could ordinarily claim while working away.

Two potential scenarios when working as a contractor overseas

What are the initial considerations for a UK limited company contractor who is working overseas? There are two possibilities when you’re performing contract work abroad through your limited company:

  1. Working abroad for a UK company

When you work this way, you’ll be performing UK contracting assignments 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 compared to working outside the UK and contracting for an overseas company. 

  1. Working abroad for a foreign company

This will entail you working as a contractor for an overseas company. What’s more, when contracting with a foreign company, they’ll probably pay you in their local currency. Therefore, you may require an account with your UK bank in a foreign currency. This is so your bank doesn’t hit you with high charges converting foreign currency to Sterling regarding payments from your overseas contract. Please see later for more information on this area.

How do I get contract work overseas? 

When it comes to considering how to get a contractor job overseas, your current client may ask you to undertake an assignment for them overseas. Alternatively, you should research overseas contracts if you’d like to obtain contract work from a foreign country.

You could search for contracting work overseas 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 can go online and search for the following terms:

  • Contract jobs overseas.
  • Overseas contracting companies.
  • Overseas contract companies.
  • Contracting companies overseas.
  • Contract companies overseas.
  • The best overseas contracting companies.

Expenses while you work as a contractor overseas 

How do you claim contracting costs when working overseas?

Can you claim your costs for contracting work overseas as a contractor? In addition, will these be tax-deductible business expenses? If yes, what sort of expenses can contractors overseas claim? Such costs could indeed add up when you’re contracting overseas. Therefore, it’s good to know which expenses are tax-deductible when you’re a contractor working abroad.

A good contractor accountant can help you operate tax efficiently when you’re performing contract work abroad. Therefore, contractors with a good accountant can help them plan for this when working overseas. Their accountant can advise them on what to consider and what they can claim when working abroad as a contractor. In this guide, we’ll go over the rules covering this and what to think about.

A good contractor accountant can help you operate tax efficiently when you’re contracting overseas. Therefore, contractors with a good accountant can help them plan for this when working overseas. Their accountant can advise them on what to consider and what they can claim when working abroad as a contractor. In this guide, we’ll go over the rules covering this and what to think about.

What are the rules for expense claims 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’re contracting in the UK, the rules are as follows:

  • It must be `wholly, exclusively, and necessary’ for your business and
  • You should obtain and retain receipts in case the taxman ever asks to see these in the future.

As an alternative to contract work in the UK, you may do some work overseas or undertake a foreign business trip. Therefore, the types of contracting costs which you can claim when you are based abroad for work reasons:

  • Fights.
  • Accommodation costs.
  • Business travel.
  • Meal costs.

Benchmark rates are also available (see below) when you perform overseas contract work (limited company). In addition, contractors working outside the UK can claim Personal Incidental Expenses (PIEs) at £10 per night.

We have a separate guide which covers relocation costs. This covers the implications when you’re moving your primary place of residence.

Further tax thoughts on expenses when contracting overseas

When you work overseas, the same principles above apply when claiming your expenses. Therefore, when you incur any expenses during overseas contract work, it’s key they’re `wholly, exclusively, and necessary.’ Please remember that you should always ask for a receipt when you pay for an expense. Your receipts should be kept with your business records.

While you’re away, you can experience different food and drinks. However, the taxman is always looking for expenses that aren’t exclusively for your business. Regarding HMRC and working abroad, the taxman is even more on the lookout. This is especially the case for expenses when you are abroad, compared to when contracting in the UK.

Where there’s a duality of purpose, a cost isn’t allowable. `Duality of purpose’ means a mix of business and personal elements is included in an expense. Therefore, you can’t 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 genuine business costs when working as a contractor overseas

First, we wouldn’t advise you to mix business trips with holidays. If a contractor delays his return home to spend a few days on the beach or sightseeing, he can’t 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 can’t claim the cost as a business expense. This is because a `duality of purpose’ has been established.

The best method to avoid confusion is to book the business and personal-related expenses individually. 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 stays 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 which includes spending for a personal benefit, you can’t claim for this.

HMRC’s benchmark rates for travel costs 

The tax office (HMRC) has worldwide benchmark rates for most countries when you do contract work (limited company) outside the UK or work through employment overseas. This list of local overseas allowance rates includes all major cities when you are contracting abroad. Furthermore, it’s important to remember that these benchmark rates aren’t fixed-rate allowances. In addition, you can only claim the amounts HMRC sets if you incur expenses that cost up to those amounts.

What else is there to consider when contracting abroad? 

Do you receive invoice payments from a foreign customer? 

When your customer or client is abroad, you should seek professional advice from your accountant on whether your business should charge the customer VAT. 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 work with a foreign client who’ll pay for your services in foreign currency. Therefore, you should consider banking arrangements for your limited company invoicing abroad. Indeed, if the client pays your invoices to your UK bank account, you’re likely to be hit with:

  • Standard bank charges.
  • You’ll 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’ve received before the conversion.

Therefore, when you have a foreign paying client, it’s a good idea to set up a bank account (with your current bank) in the currency you’re being paid in, e.g., Euros, USD, etc. When the money comes in, you won’t 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 are much less.

The 24-month rule for contractors 

As a contractor, you should be aware of the 24-month / 40% rules. This applies to contract work overseas, just like in the UK. Under this rule, you should not expect to travel to a worksite for longer than 24 months when you work as a contractor overseas. If you exceed 24 months, the rule doesn’t apply if you spend less than 40% of your working time at the work location.

Other tax issues related to overseas contractor taxes

IR35 status

As with all work you perform as a UK contractor, knowing your IR35 status in the UK is key. In addition, this applies when working for a UK company from abroad. IR35 are a set of contractor rules, and if you’re working in the public sector or for a large or medium business in the private sector, it’s 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 work for a UK company while living abroad and the client is a small business, you should 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 shouldn’t assume this places them outside the reach of IR35. Indeed, 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 your end client says they’re unaware of the IR35 overseas client rules, they are still responsible for complying with IR35.

Indeed, when contracting overseas, most foreign countries have some rules similar to those of 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 a foreign company, you must determine your IR35 status.

If you’re a contractor and a non-UK resident based overseas and providing services in the UK, IR35 doesn’t apply when there’s no charge to UK tax. Instead, it would be best to consider what rules exist in your country of residence’s jurisdiction. This is an excellent guide from Kingsbridge Insurance on IR35 and overseas contracts.

Further tax issues when working overseas 

When we consider the UK tax implications of working abroad and you’re UK-based and working through a UK company, you and your company will pay UK tax and national insurance contributions. However, in contrast to working in the UK, you may become a non-UK tax resident if you live and work abroad from the UK for prolonged periods. The UK residency rule isn’t straightforward when living and working overseas. Indeed, there are various tests to apply before determining someone’s UK residency status. In addition, after several months, the company you work for overseas might decide to pay you via their overseas contractor payroll. Such a salary would be paid to you personally rather than your company, and it’d be subject to foreign taxes in that country.

HMRC has a guide that details considerations for employees working outside the UK. If you may become a future non-UK resident, you can refer to the RDR3 Statutory Residence Test guidance notes.

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, and you are contracting overseas, the best course of action is to seek specialist advice from a contractor accountant. You can ask them about your working overseas tax situation. Indeed, this is because your position could become more complicated regarding the tax implications as a UK resident working abroad. The tax implications could mean you’re no longer a UK tax resident. When you’re a non-resident, you’re no longer subject to UK tax law. Furthermore, depending on the country you’re working in, you’ll become a resident and be liable to pay working overseas tax in the country you’re in now after a certain number of months.

Therefore, when you receive an overseas contractor salary, and your tax liability arises in the country where you’re based, you’ll pay taxes under that country’s tax system. In this instance, when you know you’ll be taxable in the country you’re now in, you must seek tax and planning advice from an accountant based there.

Contracting in the UK from abroad 

If you move to the UK from a foreign country and begin contracting there, you’ll become a UK tax resident after some time there. As a result, you’re 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 a UK company and have recently moved to the UK. Consequently, the best step would be to appoint a UK contract accountant to look after your UK side. In addition, you should make sure you check out any USA tax reporting responsibilities.

Do I need to tell HMRC if I am going to work & live abroad?

When should you inform HMRC?

When the time comes, you must inform HMRC if you’re either:

  • Leaving the UK to go live abroad permanently; or
  • Going abroad to work full-time for at least one full tax year.

HMRC have further technical guidance in this area, which you can visit for more information.

Inform your mortgage provider

Another thing to remember is if you rent your UK home out while abroad, what must you do? If you have a mortgage, you should check with your bank to see if they are okay with it. You should also check with your insurance company. This is because they may have to change buildings and content policies.

Inform HMRC

It would be best to look up the non-resident landlord scheme (NRLS) before you move abroad. Under current UK law, UK lettings agents must withhold basic-rate tax due on rental income before paying it to a UK landlord based abroad. Furthermore, you’ll be considered a non-resident landlord and come under the NRLS if you live outside the UK for more than six months. However, if there’s no letting agent, your tenant must withhold the tax and pay it to HMRC if the rent exceeds £100 a week.

If you don’t want the letting agency to deduct tax from your rent, you must send form NRL1 to HMRC. You can do this either online or by post. Indeed, it’s worth doing this if you don’t 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.

As a non-resident landlord, you must complete a UK Self-Assessment tax return each year. You’ll declare your UK rental income (and any other UK taxable income) on this.

Other considerations

Do you purchase goods overseas when contracting abroad?

When 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 may include laptops or other pieces of equipment.

Most foreign countries have facilities for people who travel to reclaim the sales tax. They can do this when they buy the goods or 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 your business is VAT registered and operating under the standard/normal VAT scheme.

What further areas are there to consider regarding 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 total amount.

Further to the above, HMRC will approve certain business expenses when it’s clear they were for a business purpose. Indeed, that’ll be a purpose that motivates the cost and no other apparent purpose. Moreover, HMRC will unlikely dispute a claim if there’s 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.

Final thoughts

As you can see, compared to UK contracting, there are many aspects to working or contracting overseas. There are specific tax rules to remember when you perform contract work abroad. Within this guide, we’ve looked at many areas to consider, including when foreign taxes may come into play and 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 the UK for an extended period. In these cases, you’ll be the best place to consult your contractor accountant or a foreign accountant.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Expenses /

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