IR35 and Overseas Working

IR35 is already a complex area, but the position becomes even more nuanced when an overseas element is introduced. With remote working now common, it is increasingly normal for a UK contractor to work for a foreign client, for a UK business to engage contractors based abroad, or for both parties to operate outside the UK.

In these situations, the key question is not simply ‘does IR35 apply?’ but ‘which version of the rules applies, who is responsible, and is there a UK tax connection at all?’

A Quick Reminder: What IR35 Is Designed to Do

At its core, IR35 is designed to determine whether a contractor working through an intermediary, usually a personal service company, would be regarded as an employee of the end client if that intermediary did not exist.

If the engagement is ‘inside IR35’, the income is broadly taxed like employment income. If it is ‘outside IR35’, the arrangement is treated as a genuine business-to-business engagement.

The usual IR35 status factors still matter in overseas scenarios. These include control, substitution, mutuality of obligation, financial risk, provision of equipment, integration into the client’s business, and whether the contractor is genuinely operating on their own account.

When the Client Is Overseas

Where the end client is genuinely based overseas, the off-payroll working rules may not apply to that client. This is because the reformed IR35 rules generally apply where there is a UK connection, such as a UK resident client or a client with a UK permanent establishment.

If the client is ‘wholly overseas’, responsibility for assessing IR35 will usually fall back to the contractor’s own limited company under the original IR35 rules. This is a crucial point. A UK contractor working for a foreign client cannot simply assume IR35 is irrelevant.

Instead, the contractor’s company should assess whether the relationship would look like employment if the company did not exist. The overseas client may not need to issue a Status Determination Statement (SDS), but the contractor still needs to consider and document the IR35 position.

The Grey Area: Overseas Client With a UK Presence

The position becomes more complicated where the overseas client has some form of UK presence. For example, a US, European or global business may have a UK branch, office, subsidiary, group company, payroll operation or permanent establishment.

In these cases, it is important to identify the actual end client. The contracting party on paper may be overseas, but the contractor may be managed by a UK team, working on a UK project, or providing services to a UK business unit.

This can create uncertainty over whether the client is truly ‘wholly overseas’ or whether the off-payroll working rules apply in the usual way. Multinational groups can make this particularly difficult, especially where contracts, reporting lines and project ownership point in different directions.

When the Contractor Is Overseas

Where the contractor is based overseas but the client is in the UK, the analysis is different. A UK medium or large business engaging a contractor through an intermediary may still need to consider the off-payroll working rules, particularly if there is a UK tax or National Insurance connection.

If the contractor is non-UK resident and performs all duties outside the UK, the practical UK IR35 risk may be reduced. However, that does not mean the UK client should ignore the issue. The client should still establish where the contractor is tax resident, where the duties are physically performed, which entity is contracting, and whether any work is carried out in the UK.

It is also important to remember that overseas working can create tax, payroll, social security or employment law obligations in the contractor’s country of residence. IR35 may be only one part of the wider compliance picture.

UK Tax Residence and Split Working Patterns

One of the biggest complications is that a contractor’s physical location and tax residence may not be the same thing. A contractor may be living overseas temporarily but remain UK tax resident under the Statutory Residence Test. Equally, they may split their time between the UK and another country.

This matters because a UK resident worker may remain liable to UK tax on worldwide earnings, even where some or all duties are performed abroad. National Insurance can also become complex where duties are carried out outside the UK, particularly if the contractor works across multiple countries.

Occasional UK work can also change the risk profile. A contractor based overseas may return to the UK for onboarding, project meetings, training, workshops or delivery work. Those visits should be considered carefully, especially where they become regular or form a meaningful part of the engagement.

When Both the Client and Contractor Are Overseas

Where both the client and contractor are overseas, IR35 may appear less relevant. If the client is wholly overseas, the contractor is non-UK resident, the services are performed outside the UK and there is no UK intermediary or UK tax connection, UK IR35 is unlikely to be the central issue.

However, the position changes if there is a UK limited company, UK tax residence, UK duties, a UK agency in the contractual chain, or a UK group company receiving the benefit of the services.

For example, a contractor may live overseas but operate through a UK personal service company. They may invoice a foreign client but remain UK resident. Or they may work for an overseas group entity while reporting into a UK-based project team. In each case, the facts need to be reviewed carefully.

Why the Contracting Chain Matters

International arrangements often involve more than just a contractor and a client. There may be a UK recruitment agency, an overseas agency, a consultancy, a group company or a managed service provider sitting between the parties.

This matters because IR35 responsibility depends partly on who the end client is, whether that client has a UK connection, and where the fee-payer sits in the chain. If a UK agency is involved, it should not assume that an overseas client or overseas worker automatically removes all compliance obligations.

The written contract should be reviewed alongside the actual working practices. HMRC and the courts will look beyond labels to the reality of the relationship.

Practical Steps for Contractors and Clients

The safest approach is to assess each overseas engagement before work starts and revisit the position whenever the working pattern changes.

Key points to document include the location and tax residence of the contractor, the location and status of the end client, whether the client has a UK permanent establishment, where the services will physically be performed, which entity receives the benefit of the work, and who is responsible for the IR35 assessment.

Contractors and clients should also retain evidence of genuine business-to-business working practices. This includes substitution rights, autonomy, project-based deliverables, financial risk, independence, insurance, equipment, and the ability to work for other clients.

In Conclusion

Overseas working does not automatically remove IR35 from consideration. A wholly overseas client may shift responsibility back to the contractor’s company, while an overseas contractor working for a UK client may still create UK or foreign tax obligations depending on residence, duties and the contractual chain.

The real risk lies in assuming that ‘overseas’ means ‘outside IR35’. In practice, the answer depends on the facts, the tax connections and the substance of the working relationship. The more international the arrangement, the more important it becomes to document the position properly and seek specialist advice where the facts are unclear.