International contracts and IR35 (work done in UK through own Ltd)

[ashleymoran]

Hi

This is my first post here. I am just going into contract work after 3 years as a permanent employee. I have already formed a UK limited company. Until a month ago I was completely unaware of the evil that is IR35...

I am currently talking with the boss of a German IT firm. If there is any work to be done, it will have to be remote (there's just no way I can move abroad now). So I will be using my own equipment, and there is obviously little scope for me to become "integrated" into the company.

Are there special conditions for work like this? Is work done that brings in foreign business exempt? Would I need to take the same care writing the contract, or is it unlikely that work of this nature would inside IR35? Are there any (legal) precedents?

And finally, has anyone here been in this situation, and can speak from experience?

Any help gratefully received. I'm getting overwhelmed by legal issues lately.

TIA, Ashley

[ASB]

There is no specific exemption of similar for foreign work. Given your description I would imagine that getting outside should be no real effort.

There are also, arguably, practical considerations as to the application of IR35 in this sort of situation. In order for IR35 to apply the work must be done via an intermediary (your LTD) and the implied arrangements must constitute what would have been employment. Where there is a foreign client there is some greyness here, as far as I am aware this has not yet been seriously tested.

In any event you also need to consider you position in Germany. They have rules about the supply of services. You will need to check how this affects you. It is possible the client will be reluctant to accept invoices for services from a UK company. Whenever I have worked in Germany it has not involved me invoicing a German entity.

Personally I just ignored all local tax/residency rules, but I was probably an illegal in a number of countries as a result of assosiated visits.

[NotAllThere]

I have invoiced a Germany company, and been paid, using a company incorporated outside the EU. The invoice was in Euros, I paid all the associated bank charges. No MWST was added. (VAT).

[ashleymoran]

There are also, arguably, practical considerations as to the application of IR35 in this sort of situation. In order for IR35 to apply the work must be done via an intermediary (your LTD) and the implied arrangements must constitute what would have been employment. Where there is a foreign client there is some greyness here, as far as I am aware this has not yet been seriously tested.

This was my feeling. Perhaps it would be possible to write a contract that would look like remote tele-working as an employee. As it happens, I don't want to be working on an employee basis, in the sense that I don't want job security or, conversely, an obligation to accept work in an ongoing fashion. I want to perform discrete taks of work, and get paid for it.

In any event you also need to consider you position in Germany. They have rules about the supply of services. You will need to check how this affects you. It is possible the client will be reluctant to accept invoices for services from a UK company. Whenever I have worked in Germany it has not involved me invoicing a German entity.

Personally I just ignored all local tax/residency rules, but I was probably an illegal in a number of countries as a result of assosiated visits.

Can you explain what you mean about not invoicing a German entity? How did you end up working in Germany but not for a German company? And what do you mean by your associated visits making you an outlaw?

As for whether this company will accept invoices from a UK company, that is just something I will have to discuss with them. Hopefully I will not have to set up a German branch of my one-man business just to get paid!

[ASB]

Can you explain what you mean about not invoicing a German entity? How did you end up working in Germany but not for a German company?

In much the same way as anybody on any sort of trip really. The specific case was contracting to a French company to integrate their system and some German software. Obviously I was invoicing the French company but I was working (and probably tax resident) in Germany.

And what do you mean by your associated visits making you an outlaw?

For about 3 years I had a flat in Paris (still in the UK and at the time under UK rules resident in the UK). I was probably also resident in Paris because French rules are somewhat different - I only spent about half my time there. I particularly didn't want to join the French tax system either. So I didn't bother. This is not something the French authorities would have approved of..... [The closest I got to this causing me serious bother was in the aftermath of a significant road accident. Fortunately this didn't need to go beyond the local town hall. They expressed some confusion over my status. I imagine had it gone to the examining magistrate I would have ended up up to my neck in tulipe]

During this time I also spent quite a lot of time in Portugal. Enough to have to declare myself to the authorities. That seemed like too much bother too....

[ashleymoran]

Obviously I was invoicing the French company but I was working (and probably tax resident) in Germany.

<snip>

For about 3 years I had a flat in Paris (still in the UK and at the time under UK rules resident in the UK).

<snip>

During this time I also spent quite a lot of time in Portugal.

Is your real name Jason Bourne?

[julian_sweet]

No worries?

Hi Ashley,

Firstly IR35 has no country boundaries. If you are UK tax resident and go and work in Germany in THEORY the same rules apply.

If you work for one client, in one place, use the tools of the client, are managed by the client, do regular hours etc the HMRC calls you a 'disguised employee'

However you are planning on working from the UK remotely using your own equipment?

I would think you would have a reasonable case for being outside of IR35.

Go to the HMRC's website and read the section on employee status. IF you meet the criteria for Self Employment then IR 35 does not really effect you.

However join the Professional Contractors Group http://www.pcg.org.uk/cms/index.php get IR35 insurance and get an accountant who specialises in IR35. Get a contract IR35 proof contract.

Other things help your status, eg multiple clients, doing training courses etc.

From a tax point of view, all tax treaties talk about physical presence. So you would be taxable in the UK.

However if you go to Germany that is another matter!

Good luck but it sounds like you have the perfect caper

Julian

[ashleymoran]

Hi Ashley,

Firstly IR35 has no country boundaries. If you are UK tax resident and go and work in Germany in THEORY the same rules apply.

You'd think they'd be more generous if I was bringing money into the country

If you work for one client, in one place, use the tools of the client, are managed by the client, do regular hours etc the HMRC calls you a 'disguised employee'

However you are planning on working from the UK remotely using your own equipment?

I would think you would have a reasonable case for being outside of IR35.

Well it looks like, if it goes ahead, it will be part-time work. I may also have some part-time work at my old company, which I fully intend to do at home, as far as practical. So that may help things. Although I've read that this can be looked on as just having two part time jobs.

Go to the HMRC's website and read the section on employee status. IF you meet the criteria for Self Employment then IR 35 does not really effect you.

Every time I go on there I end up on a different page that tells me something else. But this time I got lucky and stumbled across this:

https://esi2calculator.hmrc.gov.uk/e...ding-page.html

(you have to click on the page about accepting their terms to use it, would be nice if they made that more obvious)

It's looking positive! For the conditions I expect to work in, it says the work looks self employed yay, I'll have an extra drink tonight...

However join the Professional Contractors Group http://www.pcg.org.uk/cms/index.php get IR35 insurance and get an accountant who specialises in IR35. Get a contract IR35 proof contract.

I have been looking at the PCG. For a tenner a month it seems to offer a lot. I'm even tempted by the PCGPlus for the extra cover you get.

Do you know what sort of discount I can expect off professional indemnity and public liability insurance through them? If I pay out £220 for PCGPlus membership, how much of that will I save taking out PI and PL insurance through them?

Am I right thinking that professional indemnity and public liability insurance are pretty much essential as a contract IT worker?

Other things help your status, eg multiple clients, doing training courses etc.

I don't need training. The type of software development I do is a pretty evolving process and is mainly determined by the work people are doing, not standards committees.

On the other hand, I like attending IT conferences, but more for networking than learning. Will these be looked on favourably like training would?

From a tax point of view, all tax treaties talk about physical presence. So you would be taxable in the UK.

However if you go to Germany that is another matter!

One step at a time

Good luck but it sounds like you have the perfect caper

Julian

Cheers, thanks for the advice

[xchaotic]

Is your real name Jason Bourne?

Fact Nazi rant: Should you have been bore careful, you'd have known that Jason Bourne was just an alias, thus his real name is/would be David Webb

[julian_sweet]

Links and stuff

Again in THEORY you can be both self employed and Employed at the same time. Say your part time job for your old company on there payroll that would be employed. Your business would be self employed.

Following is the HMRC's take:

http://www.hmrc.gov.uk/employment-status/index.htm

Like you say I think you are self employed but I am not an expert!

If your old company is a contract. It should contain some of the PCG legal blurb for your protection.

I cannot comment on the specifics on the PCG. I have not used them.

I was too lazy to start a ltd when I started contracting in 2001 and IR35 was quite new. So I worked through an umbrella so it does not effect me. Over the years I have frequently read up on it as I contemplated setting up a ltd.

Most of the contactors around me were making more money but at least I new I was ok paying all my Tax and NI.

My case was not as strong as you as I have tended to work for one client at a time, have a boss, use there equipment etc. The same as alot of people I know that have ltd's. I guess they are more prepared to take risks.

The one thing I do know is the PCG win some and lose some if the tax man goes to tribunal but the people in question have pretty weak cases.

Alot of people have put too much faith in the 'substitution clause' in the contract (getting someone else in to do your job).

Attending conferences would be regarded well same as training. If you submit conferences papers as well would be good.

Only good if you pay for it yourself not your client!

I just mention the training as it is one thing that can be looked at if they were to do an investigation. It displays your independence having to fund your own training. Conferences are in the same vein as they educate.

The idea is to avoid an investigation by not pushing the limits (eg tiddly salary, large dividend, claim unreasonable expenses, not getting returns in on time for VAT, PAYE etc).

End of the day the HMRC is interested in maximizing revenue. They will target the areas where they are not getting money where they would expect to.

However they can though be flexible when it makes them money!