Placing UK contract workers overseas: a guide to getting it right

The global market can present numerous lucrative opportunities for contractors and agencies alike.

With Covid-19 driving many agencies to look beyond their current borders for opportunities, we are certain to see more UK contractors looking at new opportunities overseas.

However, making any move across the globe isn’t without its complications, and failure to comply with complex international legislation while remaining fully compliant is no easy task, writes Michelle Reilly, chief executive of 6CATS International and founder of 6CATSPRO.

International  tax and compliance requirements can vary significantly by country and it’s important that contractors and agencies alike seek expert advice for their individual circumstances.

Commonalities

That said, there are some commonalities that UK firms and individuals need to be aware of when operating overseas – for example, registering in country is critical for any assignment likely to go beyond two or three months. Failure to do this can be expensive, time-consuming and potentially extremely serious both for the contractor and the agency.

Certainly, another obvious one to mention is the Criminal Finances Act 2017 (CFA). Under this law, those in the supply chain, not just the contractors, could face criminal charges for evasion if the contractor fails to pay the correct taxes. This is especially the case if the agency has not conducted the right ‘due diligence’ on the solutions being used.

The compliance minefield

The onus is certainly on businesses in this particular case – including the end-hirer and agencies – to ensure they have adequate processes in place to demonstrate they are doing everything possible to prevent the facilitation of tax evasion. Certainly, in my view, any agency moving into a new territory should ensure they have researched compliance requirements and have a compliant method of paying contract workers or have engaged a compliance partner that can assist with this process.

Whenever an agency engages a compliance partner, they should ensure they have evidence that they have vetted said partner to ensure the solution is compliant. This helps to demonstrate that the CFA has been taken into consideration. Simply taking the word of the partner that their solution is compliant is not a protection!

Small error = big price to pay

There are also the Common Reporting Standards (CRS) to be aware of, although designed to catch out those deliberately hiding their wealth overseas. This can also catch out the unwary. More than 100 countries’ tax authorities now share financial information across borders, meaning that any individual or company failing to accurately report their earnings to the relevant authorities – whether deliberately or by accident – can be identified much more easily.

Crucially, this co-operation has also led to more governments working together worldwide to take action against those operating non-compliantly, so the risks to you and your business for a small administrative error are higher than they’ve ever been. 

For UK businesses, it’s also important to make the distinction of the IR35 rules and just who these apply to. In simple terms, IR35 is likely to only affect contractors working in the UK, but every other country has different legislation and agencies need to be aware of this.

When UK limited company workers want to work overseas...

Any UK contractors making their own move overseas should also be aware of a few key tax compliance regulations that will likely impact them. Again, every case is different and it’s important that you consult an expert if you’re taking up an international project for the first time.

But, as a rule of thumb, if you’re working in another country you should be registered in that country from day one of your contract and you should be paying tax and social security in that country. Utilising a UK limited company as a contractor overseas is not regarded by us a compliant, tax-efficient way of working. Similarly, most countries do not view using a UK limited company as a compliant way of working, as contractors often fail to register their company correctly in the country of work. So we strongly advise contractors working on assignments overseas not to use their UK limited companies.

Act before the work begins

These are just a few points that UK businesses and contractors need to consider before doing business abroad. The international contract market presents a wealth of opportunities but can become a compliance minefield if the agency and contractor fail to consider in-country compliance, before the contract placement commences.