IR35 is a UK tax rule that determines whether a contractor is acting like an employee to avoid tax. If you’re caught by it, you pay tax like an employee, even if you work through a limited company. Overseas contractors need to know if this rule applies when working with UK clients.
IR35 was introduced to prevent individuals from using limited companies to reduce their tax liability while maintaining the same level of employment as regular employees. Since April 2021, private sector clients have been the ones who decide if a contractor falls under IR35. This shift makes it harder to predict for overseas workers, especially when dealing with clients based in the UK.
When IR35 Applies to Non-UK Residents
IR35 applies to non-UK residents if they work for a UK client and the work is linked to the UK. If the work happens inside the UK or the client is based there, you could be caught under IR35.
The main thing HMRC cares about is the link between your contract and the UK. Even if you live abroad, IR35 might still bite you if your client is in the UK. Here are the usual situations where you might fall inside the rule:
UK-Based Clients
If your client is based in the UK and you’re doing work for them, even from abroad, you could still be under IR35. The contract is considered UK-related, and that’s enough to bring IR35 into play.
Work Done Inside the UK
If any of your work takes place in the UK, even for a short time, HMRC sees that as a UK assignment. IR35 rules will apply to that portion, and you might owe taxes on that income.
UK Presence Through a Subsidiary
If your client is overseas but has a UK office or legal presence, the rules get tricky. HMRC might treat them as a UK client, especially if the work benefits the UK branch. That could pull your contract into IR35 even if it wasn’t clear at first.
When IR35 Does Not Apply
IR35 doesn’t apply if your client has no UK link and your work is done outside the UK. If you’re a non-resident with no ties to UK work or UK clients, you won’t get caught by IR35.
There are clear situations where IR35 can’t touch you. But you have to be sure about both the client’s base and where the work is done.
Work Happens Outside the UK
If every part of your job happens outside the UK, IR35 doesn’t apply. Even if the client is in the UK, but your work is 100% overseas, it’s often treated as outside IR35. You may still need to prove this with proper records.
Client Has No UK Connection
If your client is fully based abroad, has no offices, branches, or tax presence in the UK, IR35 isn’t relevant. Your contract is not tied to the UK economy in any way.
You’re Not a UK Tax Resident
IR35 applies only to contracts that fall within UK tax rules. If you’ve passed the statutory residency test and are not a UK tax resident, your foreign-sourced income is usually safe. Just make sure you can prove your residency status with records like travel dates and foreign tax returns.
How to Check If You’re Caught by IR35
You check IR35 by looking at who your client is, where you work, and how your contract is set up. Use HMRC tools or get advice if you’re unsure, especially when the lines get blurry.
You’ve got to look at three things: location of your client, location of your work, and how your services are delivered. If you’re managed or controlled like an employee by a UK client, you’re at risk. Even if you’re outside the UK, the structure of your contract could still bring you inside IR35.
Who Makes the Call
Since April 2021, if your client is a medium or large business in the UK, it’s their job to decide if IR35 applies. You’ll get a “Status Determination Statement” telling you their decision. But if the client is small or outside the UK, then it’s your responsibility to figure it out.
Use the CEST Tool
HMRC offers a tool called CEST (Check Employment Status for Tax). You answer questions about your role and contract, and it tells you if you’re inside or outside IR35. It’s not perfect, but it gives you a baseline. Keep a copy of the results in case HMRC ever asks.
Get Professional Advice
If your situation is messy or you’re unsure, don’t guess. A tax advisor who knows IR35 and international rules can help you get it right. This is especially true if your contract seems to sit on the fence between inside and outside IR35.
What To Do If You Think IR35 Applies
If IR35 applies, you have to pay tax like an employee or change how you work. You can use an umbrella company, become a direct employee, or renegotiate your contract.
You don’t want to ignore IR35. If you get it wrong, HMRC could hit you with backdated taxes, penalties, and interest. Here are your main options:
Use an Umbrella Company
Agencies like DASA Umbrella company act like an employer. They pay your salary, take out tax and National Insurance, and handle admin. You get paid as an employee, and IR35 isn’t your problem anymore. This is common for contractors who fall inside IR35 but still want to keep freelancing.
Go PAYE With the Client
Some clients offer PAYE roles to contractors caught by IR35. You become a temporary employee for tax purposes. It’s simple and clean, but you lose a bit of flexibility.
Change Your Contract or Work Setup
If IR35 only applies because of how the contract is worded or how the job is managed, there’s room to change things. You might restructure the deal so that it clearly shows you’re independent and not under control or supervision. But this has to be real—not just on paper.
Factor In Costs
If you go inside IR35, expect lower take-home pay. Your limited company can’t claim the same expenses, and you’ll be paying more tax. Plan your rates with this in mind. Some contractors raise their day rates to make up for the drop.
Final Thoughts
IR35 can apply to non-UK residents if the client or work is tied to the UK. But if you live and work fully outside the UK with no links to UK clients, you’re generally outside IR35.
Overseas contractors need to check each contract closely. Who the client is, where the work happens, and how the contract is managed all matter. The rules don’t care where you sleep—they care where the work is tied to. Get help if needed, and don’t assume you’re safe just because you’re abroad. Better safe than paying a big tax bill later.
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