IR35 - Physical Presence

[jamesbrown]

For clarity, the company is US based, has employees in different countries, including the UK, all working from home. There are no premises outside of the US.

I understand there is a UK phone number that is redirected but that's as much as I know.

I think the company also falls under the definition of a 'small company' according to UK legislation.

Therefore, I believe that IR35 reform rules do not apply, but I was genuinely interested in what constitutes a physical presence, not as has been suggested, trying to fit the circumstances to my desire for the reform rules not to apply.

But what would happen if these assumptions were at some point found to be incorrect and the reform rules should apply? The client has done no IR35 assessment, there is no SDS. In those circumstances, isn't it them that feels the wrath of HMRC and I'm off the hook?

It depends. I work with US clients a lot, and they typically attempt to transfer liability in contract clauses. Anyway, physical presence is a UK branch office or PE, as I noted before. The latter can be a bit trickier than you might imagine, since a PE is established when a UK employee of the US company makes decisions for the company from the UK. However, if the client is at all sane, they will be familiar with this and will not have staff with a decision making role in the UK, i.e., create an unintended PE.

[oliverson]

well, - do you feel lucky?
it IS HMRC after all..................

Not lucky enough to cancel any IR35 investigation insurance policies!

[sadkingbilly]

For clarity, the company is US based, has employees in different countries, including the UK, all working from home. There are no premises outside of the US.

But what would happen if these assumptions were at some point found to be incorrect and the reform rules should apply? The client has done no IR35 assessment, there is no SDS. In those circumstances, isn't it them that feels the wrath of HMRC and I'm off the hook?

well, - do you feel lucky?
it IS HMRC after all..................

[oliverson]

I'd assume if the company has any employees based from a country working there then it's a physica presence. That said remote working could really muddy the waters. If I am 100% WFH I could go work in France but that's my choice, not a presence of the company.

Did a bit of ChatGPT'ing in this one and it makes a good point that seems pretty clear to me. It's what I think we both would have gone for.

In the context of IR35 and working with a foreign client that has "no physical presence" in the UK, "physical presence" typically refers to the actual location or presence of the client or their employees, rather than just the fact that a phone number is registered in the UK. Let's break this down:
1. No Physical Presence in the UK:


If a foreign client does not have an office, employees, or any physical assets in the UK, they are typically considered to have "no physical presence" in the country. In such cases, IR35 rules may not apply because the client is deemed to be outside the scope of UK tax laws, assuming other criteria related to the contract or working arrangements don’t suggest otherwise.
2. Physical Presence and IR35:


The concept of "physical presence" with respect to IR35 is most often applied to the contractor's location. For instance:

• If the contractor is physically working in the UK, then UK tax laws, including IR35, would apply.
• If the client has employees or offices in the UK, that could mean there is a "physical presence" in the UK, and IR35 may be more likely to apply.

However, the physical presence of the client (or lack thereof) isn't typically determined by factors such as having a UK-based phone number. The key here is whether the client or their representatives are physically located in the UK or whether they are actively conducting business within the country.
3. Client’s UK Phone Number:


The fact that a client has a UK phone number where calls are forwarded to an offshore number does not, in itself, constitute a physical presence in the UK. A phone number, whether it’s based in the UK or elsewhere, is a communications tool and does not imply that the client has an office or employees in the UK.

In this situation:

• No physical office: If the client operates solely from abroad, without a physical office or employees in the UK, they are likely considered to have "no physical presence" in the UK for IR35 purposes.
• Receptionist role: The fact that the receptionist is based in the UK and simply forwards calls does not create a physical presence in terms of tax law. It’s a communications task, and does not mean the client has a physical presence in the UK.

4. Summary:

• "Physical presence" typically refers to the actual physical location of the client’s operations (e.g., offices, staff) in the UK, not just to a phone number.
• A UK phone number alone, especially when calls are forwarded to an offshore number, does not create a physical presence under IR35 rules.
• If the client does not have a physical office or employees in the UK and operates from abroad, IR35 generally would not apply, provided other factors related to the contract do not suggest an employment-like relationship.

In short, a UK phone number that merely forwards calls would not constitute physical presence under IR35, as it does not indicate that the client has a tangible operation in the UK.

Interesting stuff. Thanks for looking this up.

[oliverson]

For clarity, the company is US based, has employees in different countries, including the UK, all working from home. There are no premises outside of the US.

I understand there is a UK phone number that is redirected but that's as much as I know.

I think the company also falls under the definition of a 'small company' according to UK legislation.

Therefore, I believe that IR35 reform rules do not apply, but I was genuinely interested in what constitutes a physical presence, not as has been suggested, trying to fit the circumstances to my desire for the reform rules not to apply.

But what would happen if these assumptions were at some point found to be incorrect and the reform rules should apply? The client has done no IR35 assessment, there is no SDS. In those circumstances, isn't it them that feels the wrath of HMRC and I'm off the hook?

[WTFH]

In short, a UK phone number that merely forwards calls would not constitute physical presence under IR35, as it does not indicate that the client has a tangible operation in the UK.

Except that's not exactly what he said - he said there was a receptionist who forwarded calls, so not just an autoredirect.

I would suggest that the kind of scenarios the OP is talking about, they need to be upfront about the details and discuss with a professional, not just a bunch of people on the internet.

In the same way that a blanket statement about foreign companies must be registered at CoHo, that may be technically true, but company structures mean that the registration could be for a related company, e.g. you sign a contract with Nissan Japan and claim that Nissan Japan does not have a presence in the UK, technically that's true, but Nissan UK is a subsidiary of Nissan Japan.

Basically what I am saying is that the OP is looking at two words: "physical presence" with regard to IR35, if he is hoping to get around a regulation by trying to create a scenario to fit, then it sounds almost 100% like he's inside.

[jamesbrown]

What exactly does 'Physical Present' mean, in the context of engaging with a foreign client that has 'no physical presence' in the UK, meaning IR35 reforms do not apply?

If that client has a UK phone number where the receptionist just takes the call and forwards it to an offshore number, does that constitute physical presence?

It requires a UK branch office or permanent establishment in the UK. A forwarding number is not a physical presence.

[malvolio]

If a foreign company has a physical presence in the UK then it needs to be registered at companies house.

So if it hasn't don't done that then its probably safe to assume it doesn't have a presence.

...assuming the registration isn't shared with 200 other companies at 23 Acacia Avenue, Cheam that is...

[Fraidycat]

If a foreign company has a physical presence in the UK then it needs to be registered at companies house.

So if it hasn't don't done that then its probably safe to assume it doesn't have a presence.

[northernladuk]

I'd assume if the company has any employees based from a country working there then it's a physica presence. That said remote working could really muddy the waters. If I am 100% WFH I could go work in France but that's my choice, not a presence of the company.

Did a bit of ChatGPT'ing in this one and it makes a good point that seems pretty clear to me. It's what I think we both would have gone for.

In the context of IR35 and working with a foreign client that has "no physical presence" in the UK, "physical presence" typically refers to the actual location or presence of the client or their employees, rather than just the fact that a phone number is registered in the UK. Let's break this down:
1. No Physical Presence in the UK:


If a foreign client does not have an office, employees, or any physical assets in the UK, they are typically considered to have "no physical presence" in the country. In such cases, IR35 rules may not apply because the client is deemed to be outside the scope of UK tax laws, assuming other criteria related to the contract or working arrangements don’t suggest otherwise.
2. Physical Presence and IR35:


The concept of "physical presence" with respect to IR35 is most often applied to the contractor's location. For instance:

• If the contractor is physically working in the UK, then UK tax laws, including IR35, would apply.
• If the client has employees or offices in the UK, that could mean there is a "physical presence" in the UK, and IR35 may be more likely to apply.

However, the physical presence of the client (or lack thereof) isn't typically determined by factors such as having a UK-based phone number. The key here is whether the client or their representatives are physically located in the UK or whether they are actively conducting business within the country.
3. Client’s UK Phone Number:


The fact that a client has a UK phone number where calls are forwarded to an offshore number does not, in itself, constitute a physical presence in the UK. A phone number, whether it’s based in the UK or elsewhere, is a communications tool and does not imply that the client has an office or employees in the UK.

In this situation:

• No physical office: If the client operates solely from abroad, without a physical office or employees in the UK, they are likely considered to have "no physical presence" in the UK for IR35 purposes.
• Receptionist role: The fact that the receptionist is based in the UK and simply forwards calls does not create a physical presence in terms of tax law. It’s a communications task, and does not mean the client has a physical presence in the UK.

4. Summary:

• "Physical presence" typically refers to the actual physical location of the client’s operations (e.g., offices, staff) in the UK, not just to a phone number.
• A UK phone number alone, especially when calls are forwarded to an offshore number, does not create a physical presence under IR35 rules.
• If the client does not have a physical office or employees in the UK and operates from abroad, IR35 generally would not apply, provided other factors related to the contract do not suggest an employment-like relationship.

In short, a UK phone number that merely forwards calls would not constitute physical presence under IR35, as it does not indicate that the client has a tangible operation in the UK.

[oliverson]

What exactly does 'Physical Present' mean, in the context of engaging with a foreign client that has 'no physical presence' in the UK, meaning IR35 reforms do not apply?

If that client has a UK phone number where the receptionist just takes the call and forwards it to an offshore number, does that constitute physical presence?