The UK left the EU on the 31st December 2020, and you may be wondering what this means for contractors using their limited company outside of the UK? Keep reading and discover what contracting abroad looks like, post-Brexit.
What has changed from 1st January 2021?
After months of negotiations, the UK and the EU finally reached a deal to determine how the UK and EU live, trade and work together. Freedom to live and work between the UK and the EU has come to an end, and in 2021, UK nationals will need a visa if they want to stay in the EU for more than 90 days (within a 180-day period).
Working in the EU
From the 1st January 2021, contracting through your limited company in the EU will be very similar to working anywhere else in the world. As a UK tax resident, you’ll be classed as a ‘third-tier’ country national, and in most cases will be required to obtain a permit to work. Unfortunately, as your limited company is not a local entity abroad, it will not be able to sponsor a work permit for you. It is worth noting – you may still be able to apply for a self-employed work permit, but these can be tricky to obtain and are not available everywhere.
For UK limited companies operating abroad (regardless of whether they are in the EU or not), it is vital the company understands and abides by the country’s specific requirements concerning:
- Income Tax
- Employment Law
- Social Security
- Foreign Employers
- Permanent Establishments
Before accepting work abroad, you must look into the work parameters concerning the country you want to work in, and any relevant UK law.
Exceptions to the rules
You may already possess the legal right to work in the EU or elsewhere overseas post-Brexit if you were already registered within the EU, or were working in-country lawfully before the 1st January 2021. You may also be an exception to the rule if you can acquire permission through marriage, you can prove ancestral rights or an investment scheme. It is important to note that these exceptions are not set-in-stone, and it is advisable to seek professional advice for each country.
Travel to the EU for work
If you are travelling to the EU for business, you need to take additional actions to ensure you are permitted entry. Business travel includes touring for art or music, travelling for meetings or conferences, and providing services (including for a charity). You may need to obtain a work permit, visa or other documentation if you’re travelling to the EU, Switzerland, Iceland, Norway or Liechtenstein for any of the following reasons:
- Carrying out contracts to provide a service to a client in another country in which your employer has no presence.
- Transferring from the UK branch of a company to a department in a different country (intra-corporate transfer) – even if it is only for a limited period.
- Providing services in another country as a self-employed person.
You can find more information about the entry requirements and visa or work permit required to visit different countries on the government’s website. Before you travel you may also need to:
- Check whether your professional qualifications are recognised in the EU.
- Check whether you need to tell HMRC you are going to be working the EU and check whether you’ll need to pay social security contributions.
- Ensure you have the right documentation if you are taking goods into the EU
Obtain an A1 form
Before travelling to the EU for business, you are required to have an A1 form. This requirement has been in place since July 2020, but the EU has increased its enforcement of the rules. It’s important to understand that without an A1 form, you can be denied entry to a country. An A1 form is simply a certificate issued by HMRC that proves an individual pays UK National Insurance Contributions (NICs).
Why do you need an A1 form?
There are strict rules around temporary workers’ movement between EU member states, known as the Posted Workers Directive. Any temporary worker visiting another Member State for work is required to pay local NICs from the day they arrive in the Member State. The A1 is issued by the country whose legislation you are subject and confirms you are not subject to the legislation of the country you are visiting. In other words, you will need to obtain an A1 form to prove you have no obligation to pay local social security contributions.
With the new off-payroll reforms to the private sector coming into play in April 2021, a question you need to consider is, “what happens if my client is based overseas?”
IR35 legislation applies to all UK tax resident workers, and even if the client is based overseas, it’s likely the new rules will apply if the worker is based in the UK.
Unsurprisingly, many end clients abroad are not familiar with IR35 legislation or the upcoming reforms. This raised the question – how would HMRC enforce IR35 compliance from overseas fee payers?
The Finance Bill 2020 offered some clarification, and wholly overseas organisations were excluded from the legislation. An organisation is classed as overseas if:
- They have no UK connection
- The client is not a resident in the UK and does not have a permanent establishment in the UK such as a UK branch or office
When a client is wholly overseas, the old rules will apply, and it will be the workers’ responsibility to determine whether they are inside or outside IR35. If this is the case, we strongly urge you to seek legal advice from an IR35 specialist who will review your contract and advise you on your IR35 status.
If the end client has a UK connection, such as an office or branch, the legislation will apply. The end client will be responsible for determining the contractor’s status and must issue a status determination statement (SDS). The end client will also be responsible for ensuring the correct tax and National Insurance Contributions are paid to HMRC.
It is important to note that if a UK-based recruitment agency is involved in the contractual chain, the liability will fall on the agency. Therefore, the agency would be responsible for determining the worker’s IR35 status and issuing an SDS.
IR35 is a complex area, even more so when the client is based overseas, and you should always seek advice from an accountant or tax expert if your client is based abroad.
Churchill Knight has been supporting limited company contractors for over 20 year’s
Churchill Knight & Associates Ltd has been supporting contractors and freelancers in the UK since 1998. As part of our service, you will receive expert guidance about your payroll options, and tailored tax and accountancy advice specific to your personal and business goals. Whether you are switching from your current provider or are setting up a limited company for the first time, we have a service to suit your needs. For more information about our services, please give our expert team a call on 01707 871622 or request a call back for a time that suits you.
Founded by an IT Contractor in 1998, Churchill Knight has become one of the most respected contractor accountants in the UK. We’ve helped over 20,000 contractors with their accountancy requirements. As well as our accountancy services, we also have an industry-leading PAYE umbrella company and dedicated in-house personal tax department. Whichever service you choose, you can move forward with complete peace of mind. We are proud of the reputation we’ve built over the years, and our FCSA accreditation proves how committed we are to compliance within our sector. Keep reading…