Contractors' Questions: Any UK tax on foreign freelancers?

Contractor’s Question: I am enquiring about a new UK business that has been set up by an overseas firm. The business is a management consultancy, with UK employees as well as freelance consultants who the overseas firm worked with in the past.

Before the UK business was set up, the overseas firms used freelance consultants from the Continent, who travelled to the UK every week. Will these freelance consultants have a tax problem and, if so, will the company have any exposure to the problem?

Expert’s Answer: Whether the freelance consultants have a tax problem in the UK will depend on the amount of time they spend here.

Generally speaking, if someone spends more than 183 days in the UK they are deemed to be tax resident for that year. This means they will need to submit a UK tax return based on the work done here. In addition, they will be deemed UK tax resident if they have spent on average more than 91 days here over four continuous tax years.

If the consultants were here for the normal working week they would have been here for four days as, under the rules, days are not counted if the person is not here at midnight. So the consultants would need to have been here for 46 weeks to be caught.

If a consultant is caught and has to pay UK income tax, then that tax can be recovered in his or her own country under the double tax-treaty.

There may also be a VAT issue for these consultants if the turnover from their work is greater than the VAT registration threshold of £70,000 a year.

In terms of exposure to the business, as long as these individuals are genuine freelancers, there should be no problem. If they are really employees who are calling themselves freelancers, there could be a problem because of the IR35 legislation.

The expert was Chris Lane, a partner at Kingston Smith LLP.

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