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IR35: What to do with an overseas client?

Contractors are curious to know whether the April 2020 IR35 reform will affect those with overseas end clients​

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.

HMRC’s consultation document, which was published back in March 2019, discusses some key areas regarding the reform. Some of those include:

  • The “small company” exemption.
  • Identifying the responsibilities of each party in the labour supply chain.
  • Addressing non-compliance
  • Consideration with regards to determination disagreements.
  • Anti-avoidance.
  • How the rules will apply in relation to “contracted out” services.

The answer to the question posed by many contractors falls within the ‘anti-avoidance’ discussion. The consultation document states the following:

“Where the agency or third party that would be the fee-payer is offshore, the liability moves to the next person above them in the contractual chain which is in the UK. If only the client is in the UK then they will be the liable party. Where a party in the contractual chain, including the client is outside the UK but the off-payroll worker performs services in the UK, fee-payers must still deduct tax and NICs.”

This suggests that if both the fee-payer (typically the Employment Agency) and the end client are outside of the UK, the ​end client will remain liable with regards to the IR35 determination of the contractor. The consultation document would also suggest that should the contract be directly with an overseas client, the client will then become the fee-payer and be responsible for the contractor’s status.

The issue this raises for contractors is – will my end client understand? It is therefore recommended that, should your fee-payer be overseas, discussions take place regarding IR35 from the outset. Undertaking a contract and working practices review to demonstrate your compliance may help your end client understand their new obligations; as may the CEST tool.

The closing date for comments regarding the issues raised within the consultation document was 28th May 2019 and, whilst no set date has been confirmed, a summary of those responses will be issued later this year. It is hoped that the many queries and concerns of contractors, and advisors alike, will be addressed.

By:Becci Walker

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