IR35 Rules Regarding Contractors Working Overseas
IR35 rules apply to contractors who work via a UK-based limited company and who are residents of the UK. IR35 still applies to any location where these contractors work.
Contractors who work in offshore companies are still not exempt from IR35 if their working arrangements put them inside the law. They are required to calculate and pay according to the rules set by IR35.
Theoretically, contractors should contribute to their social security. They should pay to the state in which they have their working arrangements regardless of their status in IR35. Their payments would then exclude the National Insurance Contributions.
Contractors who work for a client in a member-country of the European Economic Area (EEA) and within the ‘Reciprocal Agreement’ (RA) with Great Britain that involves social security and tax are still under IR35 legislation.
Contractors who pay their social security contributions to the state where they work do not have to pay their NICs in their deemed payment calculation. IR35 rules regarding the NIC element will not apply.
Contractors should pay social security contributions
Contractors are required to pay social security contributions. If they work in the US, they have to pay US social security contributions. If a member works in two member states, the contractor should pay the member state in which they live. If the contractor’s working arrangement is inside IR35, he has to pay income tax and NICs. Income tax and NICs are to be paid by the contractor if there is no social security system in the country where the contractor is working.
A UK-based contractor is not exempt to be free from jail and out from IR35 rules. Contractors who work for long periods of time in offshore platforms, or remote regions, or on survey vessels are not IR35 exempt. This includes contractors who are UK residents and companies that are based in the UK.
These include oil and gas contractors who work on an oil rig. Contractors who satisfy the IR35 status test and be deemed inside IR35 will have to pay accordingly.
Strict rules on tax residency
It used to be enough to spend a certain number of days outside the UK to be determined as offshore. Currently, HMRC is checking the ties of a contractor to the UK. Even if a contractor spends most of the year outside the country, HMRC will still consider a contractor to be a UK resident if he has more ties.
If you are a contractor who works offshore and has questions regarding IR35 rules, you can contact our firm.