IR35: What to do with an overseas client?

Contractors are curious to know whether the April 2021 IR35 reform will affect those with overseas end clients

[Edited 25/02/2021]

On 6th April 2017 the IR35 rules for a Personal Service Company (PSC) providing services within the Public Sector were changed; putting the onus directly on the end client to determine the PSC’s status. From April 2021, these changes will be extended out to PSCs providing services within the Private Sector – meaning most contractors will no longer be responsible for determining their own IR35 status.

Historically the jurisdiction of the end client had very little impact on a contractor’s status; namely due to the contractors own UK based tax obligations whereby IR35 was the responsibility of the contractor only. Many contractors are now curious to know whether the April 2021 IR35 reform will affect those with overseas end clients, and the answer is yes.

 

What is classed as wholly overseas?

According to guidance on the .gov website, an end client is classed as wholly overseas if it has no UK connection. A UK connection being either a permanent establishment in the UK or being a resident of the UK.

Wholly overseas end client

The rules are remarkably clear where the end user is based wholly overseas. In such cases, the rules state that the off-payroll rules do not apply. Therefore, the end client does not need to determine IR35 status, and the responsibility of determining IR35 status is then passed back to the contractor.
 

Overseas end client not meeting wholly overseas criteria

If you have an overseas client that does not meet the overseas criteria and are therefore not wholly overseas – then that client will still be responsible for determining the IR35 status of their UK resident contractors and issuing a status determination statement. So, the off-payroll rules will apply.

If the end client does not meet their obligations, it will as a consequence be liable for tax and NICs where the rules apply. HMRC will pursue this debt through the company’s UK permanent establishment.

What happens where there is an overseas client?

Further clarification provided earlier this year for the private sector rules mean that from April 2021, where the client is based wholly overseas, the responsibility is that of the PSC contractor and no other party need consider the rules regardless of that contractual chain. Everything hinges on the end user – so, any agencies in contractual chains with a client who is based wholly overseas will not need to consider IR35.
 
It is recommended that, should any member of the contractual chain be overseas, discussions take place regarding IR35 from the outset. This way all parties will know what they are responsible for from the very beginning. For more guidance on everything IR35, take a look at our IR35 Advice Centre.


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