One of the benefits of working as a freelancer or contractor is the freedom (the flexibility factor), which helps contractors work for whomever and wherever they want. For example, as a contractor, you could work on a design project for an American client from a café in France or settle your accounts on an Argentinian hacienda for a client in Paris.
Working from a foreign country is not at all easy as there could be specific legal and tax implications for both – working abroad or with a foreign company.
- Contracting abroad
- What are the implications?
- Does IR35 apply to foreign contractors?
- If you are looking to move abroad to live and work permanently outside the UK
- If you are planning to work abroad for one/series of short term contracts
- Leaving the UK to work permanently overseas but still receiving income from UK country
- Can you avoid being taxed twice on the same income?
- If you are only going abroad for a few weeks or months and intend to work while there – In that case 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.
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 statutory residence test. You can find the details here.
What are the Implications?
If you are only a UK resident for a portion of a tax year, you may be able to have your tax adjusted so that you only pay on income and capital gains for the portion of the year that you are in the UK. This is known as “split-year treatment”. It is especially important if you end up paying taxes in the country in which you are currently residing. It should be noted that each country has its own residency and tax laws, so it is recommended that you must take the advice of a professional expert in the relevant country. Also, keep in mind that if you intend to work outside the EU, you will need to apply for the appropriate visa, especially if you intend to stay longer than permitted on a tourist visa, i.e. generally around 90 days.
You need to know that residency laws are complex to understand; thus, if you are not quite sure that whether you qualify as a UK resident or not, it is highly recommended that you must take the advice of a professional expert to know more about the residency laws and identify your current residency status.
Does IR35 apply to foreign contractors?
Working offshore does not mean that IR35 rules will not be applicable to overseas contractors. For example, contractors working in remote areas, offshore installations, or survey vessels for long periods are not excluded from IR35 if they and their company are UK residents for tax purposes.
Consider the case of an oil and gas contractor employed on an oil rig who meets the employment tests used to assess IR35 status, such as being supervised by their client or unable to substitute. As a result, this contractor may be classified as being within IR35 and thus expected to make a deemed payment.
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. However, certain tasks must be completed in order to ensure that your financial affairs are appropriately handled.
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. Further, you can expect to be treated as a tax resident of your new home country from the day you arrive. Each country will have its own rules regarding tax residency, so it is critical to find out before you arrive. This is especially true if there is a time limit for new arrivals to register for taxes.
Youve probably done your research before deciding to relocate. Still, if you dont plan to hire an accountant or tax adviser in your destination country, you can visit their tax authorities website for more information.
If you are planning to work abroad for one/series of short term contracts
Contractors who are given short-term employment abroad can expect to receive general tax advice from the country where they will be employed. This information could come from the agency or the end client. Advice on whether it is more effective to operate on a direct employment contract, through an umbrella company, or through a UK company where this is possible may also be available.
Determining a persons actual tax residence is often a complicated matter, especially if the individual works in one or more countries over the course of a year. Detailed guidance should be sought if clarity is required. To solve the more complicated cases, tax advisers and HMRC rely on the UKs Statutory Residence Test. It frequently considers factors such as days spent in and out of the UK, working arrangements detail, family ties, housing, and economic interests to help reach a decision.
Leaving the UK to work permanently overseas but still receiving income from UK country
Even if you have left the UK and become a tax resident elsewhere, you will most likely be required to continue paying UK taxes on certain types of income earned in this country, for example, rental income.
If you continue to own and rent out UK property, you will be subject to UK tax on your net rental income under the UKs non-resident landlord rules. In addition, state and occupational pensions from the United Kingdom may continue to be taxed here.
Can you avoid being taxed twice on the same income?
There are arrangements in place through Double Taxation Treaties between the UK and the majority of countries around the world that, for the most part, prevent the same income from being taxed twice. These treaties grant one country or other taxing rights based on the set of rules.
It is often possible to arrange for income earned in the UK to be exempt from taxation in this country if it is taxed in the country where you live. If you are required to pay tax in one country on certain types of income, in that case, the Double Tax Treaty will usually allow you to receive a credit for the foreign tax deducted against your local tax liability.
Understanding your tax residence position may help you reduce the tax amount you may have to pay; the problem is navigating your way through the complicated subject of tax to get a good understanding of your position.
Also See: Non-Resident Tax Return
To summarise, working abroad is still a viable option for contractors seeking new opportunities. There may be difficulties in the short term, but diligent research, agency support, and professional experts like DNS accountants can help smooth your path and take you towards a different future.
In case you need specialist advice on "Contractors going abroad", kindly call us on 03330886686, or you can also e-mail us at firstname.lastname@example.org