20th April 2020
While the coronavirus outbreak has dominated the business world for some time now, there are several pressing issues that contractors and agencies still need to be aware of. One of these is IR35 – and while Rishi Sunak’s delay of the rollout of off-payroll working changes to the private sector is a welcome move – those placing international contractors should still be aware of their obligations under the changes and be well-prepared when they come into law in April 2021.
While IR35 isn’t new, and has been on the horizon for quite some time now – at 6CATS, in our dealings with recruitment firms that place international contractors, we have consistently found that there was a level of misunderstanding or confusion for some in the months before the original deadline that suggested many agencies weren’t as prepared as they’d like to be.
IR35: A summary
In summary, the new IR35 rules are an extension of those that were introduced to the public sector in 2017. The amendments were made due to concerns from HMRC that individuals working through a Personal Service Company in the UK were doing so to avoid PAYE and Class 1 NIC. As a result, those deemed to be operating outside of IR35 will need to be brought within PAYE and NICs, which may lead to a significant financial impact on individuals.
The responsibility will now fall to medium and large businesses in the private sector to determine whether or not IR35 applies to any off-payroll workers. They must also provide a status determination statement to the worker and any third party, such as a recruitment agency, including their reasons for the determination. The hiring firm must then pass the determination on to the next party in the labour supply chain (if applicable), such as another agency.
Inevitably, these changes have caused concerns for recruitment companies of all kinds. However, what we have discovered is that this UK legislation has created a level of confusion for agencies placing international contractors – something that we wanted to clear up.
Here’s what you need to know.
Recruitment agency compliance: IR35 and international contractors
In recent months, we have had a number of inquiries from agencies asking for the IR35 status of international contractors that are working overseas, and in some cases are not even UK nationals. Needless to say, these professionals are not affected by IR35 and do not need a status determination. In all cases, IR35 will only apply to UK nationals working through a UK PSC.
For instance, one agency inquired as to the IR35 status of a South African contractor, using a South African limited company but working for a UK client. Once again, there was no IR35 obligation for this worker.
We have also seen UK agencies enquire as to the IR35 status of Polish, Romanian, French and German nationals, where it did not apply, as IR35 is only applicable to UK based contractors who pay tax to HMRC.
While these scenarios are black and white, there are some instances that still need clarification. For example, some UK national contractors work short-term assignments of 1-2 months overseas and still use their UK limited company, which may leave them open to IR35 regulations. However, there has been no guidance from HMRC yet as to how this will affect agencies.
Don’t get complacent
At 6CATS, we are here to help agencies thrive when placing international contractors abroad, and would like to take this opportunity to assure firms that if contractors are working abroad, and not paying tax into HMRC – IR35 is unlikely to apply to them.
As always, the team here at 6CATS is on hand to provide our expert knowledge of international tax and compliance to help answer any queries you may have, so if you’re unsure how you are impacted by global legislation, get in touch.
If you are a recruitment agency or contractor working abroad, feel free to check out our other blogs on remote contractor compliance during COVID-19, or check out our Coronavirus resource page for contractors and recruiters.