Contracting in Europe with a no deal Brexit: What will happen if we leave the EU this Friday?

contracting in Europe with a no deal Brexit

10th April 2019

Here at 6CATS, like most of the country, we’ve been watching the tumultuous developments in Westminster, with the UK seemingly heading towards a no deal Brexit in just a number of days. In this climate, the fact that agencies are confused around what will happen with regards to contractors in the EU is understandable, and we’ve had a number of enquiries from firms anxious about the next steps they should take. While the situation remains in its current state, nobody genuinely knows what will happen, and we cannot currently provide legal advice on the matter. However, by using our extensive experience and observations of what is going on at the moment, we can provide some pointers to agencies and individuals contracting in Europe with a no deal Brexit on the horizon. So, what do you need to know?

Contracting in Europe with a no deal Brexit: Temporary Right of Residence

When it comes to UK nationals that are operating completely compliantly in EU countries, the hope is that they will temporarily be able to continue contracting in Europe with a no deal with relatively little friction. The main reason behind this belief is the fact that several nations, such as the Netherlands, have begun offering Temporary Right of Residence (TRR) letters. These TRRs give workers the right to stay and work in a country for a specified duration post-Brexit and are similar in tone to the transition letters that the UK government has provided to EU citizens working in the UK. In a best case scenario, this will help affected workers transition seamlessly regardless of a no deal exit.

However, it is important to note TRRs are only issued to those who are legitimately registered in the tax system of the countries they are working in. Any recruiters currently running overseas contractors illegally or non-compliantly, intentionally or not, may not be allowed to stay in the country, and could potentially face punishment with the tax authorities when non-compliance is discovered. Ignorance is not a defence. So what are the key things you should be looking out for?

183-Day Rule

Any recruiters with UK contractors using structures such as a UK limited company or a UK umbrella company and claiming to work under the 183 day rule, should be very concerned.  These structures are already risky options, as often the contractor will not comply with local registration requirements.  Post-Brexit, it is highly likely EU countries will not recognise any UK employment structure as a way to work in Europe.  We are already seeing France and Germany reject A1 applications for UK contractors, for example, which is an integral requirement if using a UK limited company overseas.

The 183 day rule is an internationally recognised tax concept that aims to protect dependent workers and corporations from becoming resident in a foreign country if they work or trade there for less than 183 days. Unfortunately, there’s more to the 183 day rule than simply counting days.

As far as dependent workers are concerned, the 183 day rule will only apply if the individual’s employer can demonstrate a genuine employment relationship with the worker in the country where they are tax resident and history of employment with that employee. The 183-day rule does not apply to self-employed and independent workers, who are treated as being tax resident in the host country from the start of their assignment.

Generally, individuals operating through a personal service company overseas are not able to rely on the rule, because the centre of their economic activity will be where they are contracted to work. Like independent contractors, the company becomes tax resident in the overseas country from the start of the contract and, as a consequence, so does the director and any employees of that company.

We would urge recruitment businesses engaging UK contractors in this way, to urgently review this and, where possible, localise the contractor in the country of work as soon as possible.

Recruiters must be careful

It’s clear that, while the situation is anything but certain, there are some steps recruiters can take to mitigate any potential damage after Friday. On the whole, by striving to act as compliantly as possible, you can protect yourself and your firm from unnecessary negative fallout. However, if your agency is currently letting contractors operate non-compliantly in EU countries, then you are certainly not going to be in a better position after Friday – and the consequences could be catastrophic.

As Tania Bowers, General Counsel at APSCo, explains:

“There’s no doubt that uncertainty is the only certainty with the Brexit negotiations at the moment. We are pleased that our members are making use of the international helpdesk we operate with the support of 6CATS for individual queries. If they have not already done so recruiters must review their contractor routes to market across the EU.  If contractors are utilising a UK solution or any other solution where their ability to work is at risk post Brexit then this should be urgently reviewed with the contractors concerned, with a view to a switch to a fully registered in-country (where the services are performed) solution. Even if, as is expected, Theresa May does obtain a further extension to Article 50 on Friday no deal remains a risk in a few months’ or a year’s time. We also can’t forget that any UK recruitment company director is at risk of criminal liability under the Criminal Finances Act 2017 if they, knowingly or not, are involved in a supply chain involving contractor tax evasion. This is in addition to onerous, uninsured, contractual indemnities recruiters may have given to their clients in respect of contractor tax and social costs.”

The situation at the moment is clearly highly volatile and extremely complex, and that’s why we recommend that agencies don’t try and go it alone in their contractor compliance. By contacting an expert contractor management service, you can avoid the headache of complex and unstable international tax laws, and focus on the job at hand.

Contact us today:


Follow our LinkedIn page

Follow us on Twitter

Get in touch on Facebook

Contact Us