Can you run a UK business as a contractor from abroad?

To the query many contractors have this time of year (often as the UK’s own weather warms up); ‘Can you run a UK business as a contractor from abroad?’, the answer is a resounding ‘Yes.’

However while running a UK business as a contractor from abroad is entirely possible, there are complexities to consider, writes Kevin Austin, managing director of contracting overseas advisory Access Financial.

Does your contract permit the supplier to run a UK limited company business from abroad?

First and foremost, if you’re a UK (tax resident) contractor what work or assignment will you actually be doing?

This needs your consideration before visa and HMRC issues can be addressed, because you should be aware that some UK contracts will preclude in their terms the holder from executing that agreement from abroad.

As a ContractorUK article by us to be published shortly will touch upon, government contracts, and contracts requiring security clearance, often contain this preclusion. Similarly, some commercial contracts might prohibit being fulfilled remotely, outside the UK.

Residency, bars and the 182-day rule

Then, who are you exactly? If, for example, you are a non-UK resident and plan to work in the UK, you will most likely need a Skilled Worker Visa (SWV).

To obtain an SWV, you must have a job offer and meet specific salary thresholds. If you're planning to work outside the UK, this is unnecessary.

Related, there are (fortunately for some) no residency bars to running a business in the UK or to being a UK company director.

But if you're a UK tax resident and intend to work abroad, you should note that a director risks becoming a tax resident under the rule of domestic law in the work country.

Typically, this occurs after spending more than 182 days in a tax year in the work country. In many developed countries, this leads to being tax-liable for your worldwide income, not just the income that arises in your working country.

Geography

Now, let’s look further at geography.

Regardless of your exact location, if you have a business in the UK, whether as a sole trader or limited company, you must disclose that business’s existence to the UK tax authority -- HMRC.

The taxes you then become liable for and therefore need to pay, will depend on your residency status and how you structure your contractor business.

But let's say you're a UK tax resident who decided they want to stay in a country where they were enjoying a holiday. Unfortunately, while on a UK tourist visa, you are not allowed to work for your UK limited company, even if you perform the work abroad.

Tourist visas

A tourist visa is intended for leisure and tourism activities rather than for conducting business operations.

If you intend to work for your UK company while abroad, you must apply for a visa that permits such activities. Fortunately, there are several options, including work and residence visas and nomad visas.

Be aware, working for your UK company while on a tourist visa can have serious consequences, including revocation, denial of future visa applications, and even legal penalties.

Be further aware that post-Brexit, the only countries where a UK national can work unrestrictedly are the Republic of Ireland, the Isle of Man and the Channel Islands.

HMRC, VAT and tax considerations

Of course, the area of tax is key. To avoid paying tax twice on the same income, you should check if your country has a Double Tax Treaty with the UK. 

So using the websites of the relevant tax authorities, look to see if there is a DTT between the countries where you want to run the business and where you are habitually tax-resident to avoid paying twice on the same income.

Even if running your UK business as a contractor from abroad, you must register your business with HMRC for VAT if your VAT-taxable turnover exceeds £90,000.

You can also register if your turnover is less than £90,000, if you perceive there may be benefits. You might want to register with HMRC for VAT to recover input VAT, for example.

If you do not already have a UK limited company, consider converting to one or setting one up for both tax benefits and limited liability.

If you’re a non-UK tax resident, you should check what your home tax authority requires you to do when you have a foreign business. Most developed countries have worldwide taxing rules that will bring you and your business into your home tax net wherever you or wherever your business may be.

What is a permanent establishment?

But if you are a UK tax resident and want to look at running a UK company from overseas then be aware of what's called a permanent establishment.

A company gains a tax presence and a permanent establishment ('PE') under international tax treaties and domestic law under these circumstances:

1. Fixed Place of Business: If your UK company has a physical office, branch, factory, or other fixed place of business in a foreign country, it could be considered a PE. This includes even a small office or a co-working space used regularly.

2. Dependent Agent: If a person acting on behalf of your UK company (e.g., an employee or agent) has the authority to conclude contracts in the foreign country and habitually exercises this authority, this could create a PE. If you are the sole director going abroad, then central management shifts to the work country, and you have achieved PE.

3. Construction Site: A construction or installation project lasting for a specific duration (usually over six months) can constitute a PE in some countries.

4. Service PE: In some cases, providing services in a country for a prolonged period (usually over six months) can trigger a PE, even without a fixed place of business.

5. Specific Activities: Certain activities, such as mining, oil and gas exploration, or running a warehouse, can also lead to creating a PE, even for shorter durations.

In the event you're UK limited company is considered to have a PE in a foreign country, it may become liable to pay corporate taxes on the profits attributable to the PE in that country, which can lead to increased compliance obligations and potentially higher tax burdens.

Money matters

Next, money. I recommend opening a business bank account in the UK to receive payments and manage finances.

Without it, when HMRC comes to investigate your affairs, they will insist that you reveal all your banking arrangements to them, so keep your business and private finances separate.

When sending or receiving money internationally, you should consider currency fluctuations and transfer fees.

Infrastructure

Sixth, technology. Most businesses nowadays (and every business carried out remotely) can’t be without good communication and infrastructure.

You should ensure a stable and ideally high-speed internet connection for remote work and client interaction.

Fast broadband is fortunately available almost everywhere in the UK. But don’t stop there if you’re going to be running a UK business from abroad in the long term -- a small investment in video conferencing and project management software will be vital for running smoothly and should yield a significant return.

Don’t run a UK business from overseas without having cover in place

Seventh, what about when technology and other things go wrong?! In this event, your UK business will need to be covered, especially if it operates in Britian while you are abroad. Indeed, pretty much every UK business now needs insurance.

You should check in the small print that the cover is going to meet your specific needs.

The ideal policy for you may include professional indemnity insurance to protect yourself against claims for errors or omissions, civil liability, or employment risks if you employ anyone.

Help get your finger on the pulse

Eighth, be prepared. Regulations can and do change in the UK quite frequently, so it's crucial to stay up-to-date on the latest visa requirements, taxes, and business operations. For this reason, you should consult an accountant specialising in people engaged in similar circumstances for tax, legal and general business guidance, both in the UK and in your country of residence.