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 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’ll have benefits. Indeed, this includes better weather. In addition, when you’re performing some contract work overseas, you’ve 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’ve 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’s 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’re from the UK working abroad.

Initial thoughts -working or contracting overseas

First thoughts

In this guide, we’ll 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 also 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.

What to think about first

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 some contract work overseas (UK company), you can experience different tastes and new cultures.

You’ll jump on a plane if you land a contract in a foreign country. As a result, you’ll meet up with an overseas client face-to-face when you get there. If all goes well, you should be able to start contracting abroad fairly soon.

You may also be asked to perform contractor work overseas if you work through your own limited company. Alternatively, you could be contracting through an umbrella company for an overseas contract or even if you’re 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 doesn’t cover what you could ordinarily claim while working away.

Common questions

For those who are thinking about working for a company abroad, some common thoughts and questions may arise. Therefore, these include:

  • Can I work abroad?
  • 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’ll consider the above and look at the various considerations when you work abroad overseas. What’s more, we’ll consider can you work for a UK company and live abroad. In addition, we’ll look at the UK tax working abroad (HMRC rules). Further still we’ll venture into IR35 and foreign tax implications, when you’re working outside of the UK in a foreign country.

Two potential scenarios when you are working as a contractor overseas

What’s the initial considerations for a UK limited company contractor who performs contracting work 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, it’ll be where you’re 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 outside the UK and contracting for an overseas company. 

  1. Working abroad for a foreign company

As part of this work, it’ll entail you working as a contractor for an overseas company. When you’re contracting with a foreign company, they’ll 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 doesn’t hit you with high charges converting foreign currency to Sterling in respect of payments from your overseas contract. Please see later in this guide 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 contracting abroad. Alternatively, if you’d like to obtain contract work from a foreign country you’ll need to research overseas contracts.

Basically, you could search for contract 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.

Your expenses while working as a contractor overseas 

Claim your contracting costs when working outside the UK

When you’re 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’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. Therefore, when working overseas, contractors with a good accountant can help them plan ahead. Their accountant can advise them what to consider and what they can claim when working abroad as a contractor. In this guide, we’ll 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’re 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 which you can claim when contracting overseas are:

  • Flights.
  • Accommodation costs.
  • Business travel.
  • Meal costs.

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

We’ve also a separate guide which covers relocation costs. Basically, this read covers the implications when you’re 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’s key that they’re `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’re away, you can experience the different food and drinks. However, the taxman is always on the lookout for any expenses that aren’t exclusively for your business. When it comes to HMRC & working abroad, the taxman is on the lookout even more. This is especially the case when you’re contracting abroad, compared to your expenses when contracting in the UK.

Where there’s a duality of purpose, a cost isn’t an allowable one. `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 for your genuine 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 spend some time 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 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’ve a receipt or invoice that 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. Basically, this list of local overseas allowance rates includes all major cities. Furthermore, it’s important to bear in mind that these benchmark rates aren’t 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.

What else to bear in mind when you’re contracting 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 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’ll be paying for your services in a foreign currency. Therefore, you’ll 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’ll likely be hit with:

  • Standard bank charges.
  • You’ll 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’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.

Contracting abroad -the 24-month rule for contractors 

As a contractor, it’s key to 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 overseas, you should not expect to be travelling to a worksite for longer than 24 months. If you do 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 -overseas contractor taxes

IR35 status

As with all work you perform as a UK contractor, it’s key to be aware of your IR35 status when you work in the UK. In addition, this also applies when you’re working for a UK company from abroad. Basically, 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’re 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 shouldn’t 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’s the case that your end client says they’re unaware of the IR35 overseas client rules, they are 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 doesn’t apply when there’s no charge to UK tax. Instead, you should consider what rules exist in your own country of residence’s jurisdiction. This is a great guide from Kingsbridge Insurance on IR35 and overseas contracts.

Additional tax considerations when you are contracting abroad or working overseas 

When we consider the working abroad UK tax implications and you’re 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’re no longer a UK tax resident. When you’re living and working overseas, the UK residency rule isn’t straightforward. Indeed, there’s various tests to apply before determining someone’s UK residency status. In addition, after a period of time, the company that 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 to your company and it’d be subject to foreign taxes in that country.

HMRC have a guide which details considerations for employees working abroad. If you may become non-UK resident in future you can refer to 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, 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’re no longer a UK tax resident. When you’re a non-resident, you are no longer subject to UK tax law. Furthermore, depending on the country you are 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 time period.

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

Contracting in UK from abroad 

If you move to the UK from a foreign country and begin contracting there, after a while you’ll become UK tax resident. As a result, you’ll 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’re either:

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

HMRC have further technical guidance in this area which you can visit to find out more information.

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.

Inform HMRC

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’s based abroad. Furthermore, you’ll 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’s 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 don’t want the letting agency to deduct tax from your rent, you must send in form NRL1 to HMRC. You can do this either online or by post. Certainly, 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’ve no other or minimal UK taxable income.

When you’re a non-resident landlord, you’ll need to complete a UK Self-Assessment tax return each year. On this you’ll declare your UK rental income (and any other UK taxable income).

Other considerations

Buying goods from overseas when working or contracting abroad

When you’re contracting overseas, you can take advantage of the lower prices for goods. This’ll 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 your business is VAT 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’s clear they were for a business purpose. Indeed, this’ll be a purpose that motivates the cost and no other clear 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’ve a reason to believe an expense has a dual purpose. Therefore, please be careful.

Final thoughts

As you can see, in comparison to UK contracting, there’s 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’ve 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’s 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’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: January 4th, 2024 / Categories: Expenses /

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