Revealed: here’s where overseas working in 2022 is challenging contractors

People turn to a career in contracting for all kinds of reasons: the flexibility, the ability to set your own terms, and the enormous potential client base.

With opportunities where your physical presence isn’t required on-site, the lure of contracting can be even stronger -- because your office and your clients can be literally anywhere in the world.

All that glitters…

While the lifestyle of an international contractor or roaming temporary professional can be practical and appealing, it also raises potential difficulties.

As an umbrella company that helps recruitment agencies and contractors manage payment for temporary overseas contracts, we see two key issues that contractors can struggle to contend with, writes Kris Simpson, UK country manager at Cool Company.

Two big challenges facing contractors up for contracting abroad

1. Actually finding clients

Despite the challenges of Brexit, many UK contractors have made the decision to work with organisations overseas, often because they want to expand their pool of potential new business and earning opportunities. But finding customers isn’t always easy. In most cases, contractors will need to turn to the support of a recruitment agency to help place them or/and find engagers.

There is a lot to be said for direct-to-client engagement but when making your first foray into contracting overseas, the benefits to using a recruitment agency are hard to ignore. Winning contracts overseas, where English may or may not be spoken is no shoo-in, even if you’re an experienced consultant in the UK.

We tend to see contractors reaping the benefits of agencies where the recruiter specialises in the sector and/or country they want help being placed in.

Utilising an agent’s local knowledge and of course, their roster of clients are two must-dos. In addition, the best agency-fit – at least that contractors tells us anyway, is when they as temporary professionals don’t need to worry about researching rates too much, because the staffing business is familiar with the best local rates. Having an agent who negotiates on your behalf to secure the best terms – so not just pay – is a desirable add-on. 

2. Managing admin, and IR35

So you’ve found the clients, what’s next? The admin, unfortunately! And this is something that the off-payroll rules make more of a headache.

First though, be aware that navigating administrative issues such as taxes, insurance and compliance is not for the faint-hearted, although it is part and parcel of contracting overseas.

Second, while all these three areas can be a bit opaque (particularly if you have neither a recruitment agency nor an adviser ‘on the ground’ in the host-country), each of them still applies if you want to work abroad, whether you fall in scope of IR35 or not.

Be aware, as a contractor, you can choose to tackle these three with the ‘DIY’ approach as a Personal Service Company (PSC), or consider paying and working with an umbrella company, with a view to them doing much of the heavy-lifting.

Determining IR35 status when contracting overseas: overview

The starting point? You first need to determine if the contract is going to be inside IR35 or outside IR35. Should that not be determined already, HMRC’s CEST tool might be worth running, or you can seek advice from a status expert.

If you proceed on the basis that you are operating outside IR35, it invariably means that you will be working as a contractor via a PSC. In this case, you will be responsible for coming up with the right amount of national insurance and tax on the money that you receive for your work. If you are working with wholly overseas clients – i.e. an end-client that operates  completely overseas and has no UK connection, you can process your self-calculated contributions accordingly.

However (and here’s a rub that’s often overlooked), if you’re classed as inside IR35, working in the UK but with overseas clients, HMRC will expect employment taxes to be paid on all your income, including national insurance contributions for employer and employee.

To that end, when working with overseas clients, your statutory rights are your responsibility. Third-party solutions exist in the market to help with PAYE deductions, pensions and statutory rights access. Ensuring the solution you choose is not only compliant but employs you on a legal level is important if you want to avoid blowback from a PAYE perspective.

Extra complications of working abroad (including when the client cannot payroll you)

Further be aware, if your contract means you will be performing the work on the client's site outside the UK, then you may face extra complications such as local tax rules, registration requirements, and insurance. Worse still, your new client may not have the function to payroll you, and so you may need to source a local third-party company to assist you -- similar to how an umbrella company would. These suppliers can help with all tax admin, along with giving you access to benefits reserved for foreign workers. But be careful because just as we’d advise when looking for any umbrella company in the UK, ensure you do ‘due diligence,’ steer clear of any ‘too good to be true’ offers, and double-check any uncertain areas with an adviser. Even an adviser to contractors back in the UK is recommended, should you not have a knowledgeable, trustworthy source in the host country.   

Tall order on a short contract? Often it is…

Ultimately though, setting up accounts, registering for tax, and sorting logistical issues at the same time, even like securing accommodation, can be a tall order if you’re alone and have a short contract to quickly execute.

Again, the right local supplier can help remove this stress with practical and accurate advice and support. Speak to your agent, or other contractors, for starting points on who to potentially enlist.

Contracting overseas ain’t what it used to be

Many moons ago, contracting overseas used to be a relatively simple but exciting way to earn a living, as long as you paid your tax and NICs. But challenges posed by Brexit, and IR35 reform  -- freshly reinstated by the UK government -- have inserted layers of complication, even for contractors who mainly work with overseas clients. So third-party management – such as umbrella companies -- is undeniably a simpler route when compared to the still-possible but oft-stressful avenue of maintaining your own business on an independent basis.