In a post Covid world after restricted travel and with property prices in the UK continuing to soar, more and more people are considering their options for working abroad.
However, contracting in the UK whilst working abroad needs planning and thought to ensure you consider tax implications, visas, business set up, work permits, national insurance contributions, residency and local tax liability.
In this blog we look at what UK contractors need to know if they go and work overseas.
Can I contract in the UK whilst I work abroad?
The simple answer is yes you can. However, there are rules to consider to ensure you pay the right tax in the right country and that you spend enough time in the UK if you want to continue to pay UK taxes. You also need to consider how you gain work abroad and how you will live abroad while still accessing potential opportunities in the UK.
Should I use an umbrella company for contracting in the UK from abroad?
Tax is a huge area to consider when you opt to work overseas. Understanding if you need to pay UK tax or pay tax in another country can hugely affect your earnings.
Tax in some countries can vary by state or district and understanding where you are classed as a tax resident will impact the amount you pay. Without clear advice from an accountant or tax adviser, you may find yourself paying too much tax, in both the UK and in your new temporary or permanent foreign country.
Many overseas contractors choose to use an umbrella company that specialises in international contracts. These umbrella companies act as an ‘employer’ for freelancers and contractors. They negotiate contracts with clients, find work opportunities, have relevant licences, help to handle tax affairs, provide payroll services and deal with expenses.
When contracting overseas, using an umbrella company can give you peace of mind and make the whole experience quicker, easier and cheaper than setting up your own limited company.
The downside of working this way is that you essentially become a permanent employee of the umbrella company, and therefore lose the tax benefits of being self-employed.
Can I use my UK limited company for working abroad?
Following Brexit and the UK leaving the EU, this has affected how easy it is for UK residents to freely work abroad, especially in other EU countries.
If your limited company is already registered with the EU, you can continue using it to contract in the EU, the UK and across the globe. However, if it isn’t registered with the EU, then you may need a self-employed work permit in the country you wish to work in. It isn’t always easy to obtain the right permits and therefore, many overseas contractors remain as sole traders or use umbrella companies.
As a general rule, we would not recommend working on an overseas contract via your UK limited company for more than 6 months, as the risk of becoming ’dual resident’ for tax purposes is increased.
If you take a short-term contract and then settle in that country and you decide to stay for a prolonged period without returning to the UK, it may be beneficial for you to set up another limited company in your new country of residence. If you do this, you will need to seek expert advice from a local accountant when registering and maintaining the company and comply with local tax laws.
Does IR35 still apply if I work abroad?
IR35 rules here in the UK ensure that contractors and freelancers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees.
Working offshore does not mean that IR35 rules will not be applicable to overseas contractors. For example, contractors working in remote areas, such as offshore installations, or survey vessels for long periods are not excluded from IR35 if they and their company are UK residents for tax purposes.
So, the IR35 off-payroll rules may still apply if you’re contracting abroad, but this will be dependent on your residency status, how you contract, your tax and working status. Here at dns accountants we can advise you on your IR35 status. The good news is that if you work via an umbrella company then IR35 doesn’t apply. The legislation only comes into play for self-employed contractors operating through their own Personal Service Company (PSC), Limited Company or Partnership.
What are the tax implications when I work abroad?
If you are only going abroad for a few weeks or months and intend to work while there, there are usually no tax implications to consider as most countries allow a short period where you will be classed as a non-resident (please check the country’s law before travel).
However, if you intend to relocate abroad permanently or live abroad for a longer duration, you could be classed as a non-resident of the UK as of the date of departure. You will no longer be required to pay UK tax if you are no longer a resident.
Whether you’re UK resident usually depends on how many days you spend in the UK in the tax year (6 April to 5 April the following year).
You’ll only be resident in the UK if both of the following apply:
- you meet one or more of the automatic UK tests or the sufficient ties test.
- you do not meet any of the automatic overseas tests.
Otherwise, you’ll be non-resident in the UK for tax purposes.
You may be resident under the automatic UK tests if:
- you spent 183 or more days in the UK in the tax year.
- your only home was in the UK for 91 days or more in a row - and you visited or stayed in it for at least 30 days of the tax year.
- you worked full-time in the UK for any period of 365 days and at least one day of that period was in the tax year you’re checking.
You may also be resident under the sufficient ties test if you spent a number of days in the UK and you have additional ties to the UK, like work or family.
If you intend to visit the UK frequently, the situation becomes a little more complicated.
If you do this, you will continue to be a resident and subject to taxation unless you:
- Meet the automatic overseas test or.
- Do not meet the sufficient ties test.
For sufficient ties test, HMRC will consider several other factors, including:
- Your family ties.
- Social ties such as memberships in UK clubs or societies.
- If you still have a home in the United Kingdom.
- If you have any professional ties, including whether you are still the director of your limited company.
Note: You can work out your residence status using the UK’s statutory residence test. You can find the details here.
As UK Corporation Tax rates are competitive, it may be worthwhile to keep your company registered here in the UK. However, there are some things to consider
- Some countries may not allow you to contract through your UK company.
- If your company remains in the UK, you will be liable for corporation tax in the UK so you should seek advice about both the personal and corporation tax you will need to pay for bringing money back into the UK.
If you remain a UK resident, you may want to continue to pay National Insurance Contributions (NIC) in the UK to be eligible for the state pension and other benefits.
If you move abroad permanently and then in future decide to return, it may be worth catching up on your National Insurance Contributions to be eligible for UK state pension in the future and other benefits.
If you’re VAT registered, the rules applying to the supply of services between the UK and EU companies are the same as the rules for supplying services from the UK to the rest of the world.
The Business to Business (B2B) general rule applies so that the supply is made where the customer belongs. Commercial evidence that the customer belongs outside the UK should be retained. For EU customers their VAT registration number is good evidence. You can reclaim the VAT from EU member states, but you must do this using their existing refund system. The process varies across each EU country so you will once again need to seek professional advice in each EU country where you incur VAT.
Business bank accounts
You need to consider how your clients abroad will pay you and whether this is through a UK bank account or a bank account in the country in which you are working. This will depend on if you are contracting for a short period or permanently abroad. Some countries have strict rules on who can open a bank account in the local currency.
If a foreign client pays your invoices to your UK bank account, you may be charged a standard bank charge and you may get a lower exchange rate than market rate.
It may be possible to set up a bank account in the currency you are being paid with your current UK bank, this will avoid you being charged a foreign exchange cost. You can then transfer the money from your foreign currency account to your UK sterling account and it is likely the charges will be less.
If you are looking to move abroad to live and work permanently outside the UK
Contractors who are considering relocating permanently to another country will find their tax situation to be relatively simple.
You will normally cease to be a UK tax resident on the day you leave the country permanently. However, it is recommended that you complete and submit a P85 form to HMRC if leaving the UK to work or live abroad permanently.
Before you decide to relocate permanently it is worth seeking professional advice about the tax rules in the country you are looking to reside in. Each country has its own rules and you will be treated as a tax resident from the day you arrive.
British citizens’ EU citizenship and free movement rights ended when the Brexit transition period expired on 31 December 2020. Since 1 January 2021:
- British citizens still do not need to apply for a visa in advance of travel to the EU as a short-term visitor. The rules for short-term visits to most EU Member States are set out in the Schengen Borders Code. This allows stays within the Schengen area of up to 90 days in any 180-day period.
- British citizens’ eligibility to live, work or study in an EU Member State depends on the host country’s national immigration laws and visa requirements.
Remember that since leaving the EU, there are strict rules on how long a UK resident can visit another EU country. Non-EU visitors are only allowed to visit Schengen area countries for 90 days in every 180 day period. If you are intending to work in an EU country, then you’ll need a work permit to work in most EU countries if you’re a UK citizen.
In most cases, you’ll need a job offer from your chosen country so that you can get a visa to move there. Check out gov.uk for mor information on working abroad.
Travel expenses and the HMRC 24 month rule
If you live overseas and undertake contracts back in the UK, you may need to visit your clients in the UK occasionally or undertake some work here in the UK.
If you’re still a UK resident for tax purposes, it may be possible to claim tax relief from HMRC on your travel expenses.
Note that the HMRC 24 month rule will apply. This rule means that if you regularly make the trip over a period lasting 24 months or more, or spend more than 40% of your time at the workplace, you won’t be able to claim tax relief. So, you can only claim tax relief on travel and other expenses that are out of the ordinary. For example, a one-off trip to your client’s office.
Contracting is still a viable option for many contractors and freelancers seeking new opportunities. With the rise of people becoming ’digital nomads’ and working across a multitude of countries, it really is worth seeking professional advice and understanding the rules that will apply to you before you make any decisions.
For help and advice for contractors and freelancers going abroad, call us on 03300 886 686, or you can also e-mail us at email@example.com.
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