IR35 Reforms – when the end-client is based abroad

My client is not based in the UK

Most contractors will be acutely aware of the IR35 reforms that are to be introduced in the private sector in April 2020. We continue to support various groups seeking a suspension of the legislation, as would be appropriate, but concurrently are undertaking an exercise to prepare all of our clients for the change.

Recently, this has seen us conducting a large number of consultations with clients, looking at each individual’s circumstances and developing plans going forward into the new year and beyond.

One question that is constantly recurring is the following;

“what if my end client is overseas?”

Typically, the IR35 status and responsibility for deducting tax has rested on the contractor themselves as part of their involvement in a PSC. The tax consideration is therefore straight forward enough based on where the individual is tax-resident. Similarly, the jurisdiction of the end-client had little effect on the overall picture for IR35.

The new reforms see the responsibility for status determination and liability shift to the fee payer and so a second look at the legislation will be required to assess the liability.

Responsibility travels

The consultation document published in March 2019 states;

“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.”

The notion here is that despite the fee-payer being based outside the UK, if the contractor is based inside UK, then that end client is duty bound to deduct tax and NIC.

Clearly, in the above explanation, if there is a UK agency then the liability would fall to the agency. But, where there is a direct contract with the end client who is based outside the UK, the responsibility and liability falls to them.

What does this mean in practicality?

It is very common to see many non-UK end clients, entirely oblivious to IR35 and their duties in this regard. It is therefore suggested that where this is the case, the contractor should seek to facilitate the discussion with their client, making them aware of the legislation and the effect this may have.

A sensible course of action for you to take on behalf of your end client would be to conduct an IR35 review. A summary of the findings can then be passed on to your end-client so that they can take steps to adopt this into their own compliance measures.

In the first instance, take some free advice from the wealth of firms offering this. Similarly, we speak to many overseas end-clients on behalf of our own clients, so if you would like to discuss how we can help here please do not hesitate to contact the team.