One of the perks of being a freelancer or contractor is that you have more flexibility to work for whomever you want, wherever you want. You may choose to complete a design job for an American client from a café in Paris, or sort out your accounts on an Argentinian hacienda.
Working from a foreign country isn’t all margaritas and sandals though; there are both legal and tax implications for either working abroad, or working for a foreign company!
If you’re just going abroad for a few weeks or months and want to work whilst you’re away, then there usually won’t be any tax issues to consider.
However, if you’re planning on moving abroad permanently, or for a period of three years or more, you will be treated as not resident in the UK from the date of departure. If you are no longer a resident, you will no longer have to pay UK tax. Find out more in our ‘Am I a UK Tax Resident’ article.
The situation is a bit more complex if you’re planning to frequently return to the UK. If you do this, you will remain a resident and liable to pay tax unless your visits are less than:
- 183 days in any tax year
- An average of 91 days per tax year over a period of four years
On top of this, HMRC will take into account a number of other factors, including:
- Your family ties
- Social ties, such as memberships at UK clubs or societies
- If you still have a house in the UK
- If you have any work ties, including whether you’re still the director of your limited company
Note: for the 91 day test, qualitative evidence will also be looked at to determine your residency, such as whether or not you’ve bought property abroad. If this is seen as insufficient to suggest you’ve left the UK, you will be treated as a resident for the first three years, after which the situation will be reviewed.
What implications does this have? If you are only a UK resident for part of a tax year you may, in certain circumstances, have your tax adjusted so you only pay on income and capital gains for the part of the year that you are living in the UK. This is called ‘split-year treatment’.
This is especially relevant if you end up having to pay tax in the country you are currently living in. Note that every country has its own laws on residency and tax, so it’s recommended that you seek the advice of a specialist in the relevant country.
Also remember that if you’re working outside the EU you’ll need to apply for the relevant visa, especially if you plan to stay longer than permitted by a tourist visa, which is usually around 90 days.
Residency laws are very complex, so if you’re unsure whether you qualify as a UK resident or not, you may need to speak to a specialist, our article Am I a UK Tax Resident is a good place to start. If you’re still unsure about your status, you can use the residence status checker on HMRC.
Finally, you may want to consider your options with expenses. If you’re visiting another country for the sole purpose of fulfilling a contract then you will be able to claim expenses for flights, hotels, etc. from your limited company. However, if you just so happen to be on holiday and doing a bit of work, then you will not be able to claim.
Moving abroad to work
The UK has one of the most generous Corporation Tax rates in the world. As a result, even if you are moving abroad, it may work out best to keep your company registered in the UK. There are, however, a few things to take into account.
- Tax laws around the world are different and some might not actually let you contract through your company
- In countries that do allow it, you’ll have to make sure you:
- Source expert tax help in the country you are working in
- Consider what UK personal and Corporation Tax you’ll have to pay for bringing the money back into the UK – if your UK company remains, it will still be liable for corporation tax in the UK
- If you are still a UK resident, continue paying National Insurance contributions, if you want to be eligible for a UK state pension
- Some countries have strict rules on who can open a bank account in the local currency. If so, you’ll have to consider how your clients are going to pay you.
- What’s the exchange rate like in the country you’ll be working in?
- If you stop being a UK resident then, if at some point you decide to return to the UK, you’ll have to consider catching up on National Insurance contributions
One way of satisfying most of these criteria is if you use your UK limited company but find a locally-managed umbrella company. An umbrella will help you arrange your visa, work out details of sponsorship, and determine the most favourable tax package.
When looking for a company to go with, keep in mind that umbrella companies are not called the same thing in all countries. In Australia, for example, they are called ”Salary Packaging companies,” and in the US they are called ”Payroll” companies.
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.
Once you’re settled, if you are considering working abroad 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.
Note, however, that you will need a local accountant for taxes and you will need to handle the administration for registering and maintaining the company. If this is something you want to consider, it’s recommended that you seek expert advice.
Tips for international clients
Wherever you are in the world, there are a few basic rules you need to observe when accepting work from clients in another country.
Most importantly, you should always make sure that international clients agree to a contract that binds them to payment laws in the country you’ll be invoicing them from. If you don’t do this then, should a dispute arise, you may end up entering a legal battle in a foreign jurisdiction. Any legal dispute is costly and time consuming – if it takes place in another country, it’s even worse.
Method of payment is also something you’ll need to consider, as international bank transfers take a long time to process, and cost a flat fee to send. A solution to these troubles may be to convince your international clients to pay via an online payment service such as FairFX, who offer free international money transfers You can even take card payments using certain online services.
If your client is particularly forward-thinking, they may even suggest being paid in a digital currency such as Bitcoin, which will allow you to be paid instantly and with zero transaction fees. Be aware if you do choose this method then you are advised to have an account set up with a reputable bitcoin exchange if you want the money in traditional currency as soon as possible.
Worried about IR35?
IR35 is a complicated piece of legislation that affects contractors.
You might think it would be easy to distinguish between a contractor and employee, but HMRC don’t see it as that black and white.
For more information, give us a call on 0371 454 2892