IR35

IR35

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Imagine a scenario where by Pedro sets up a limited company is his home country inside the EU. He is the director of the company which provides consultancy services.  He takes a salary and small dividend at the end of the year if there is a company profit. Pedro is a happy man.

Lean times then visit Pedro's economy and so Pedro decides to expand his reach and engages a client in the UK.  

Pedro signs a contract with UK Co. and although he does the majority of the work from his office in his home country, Pedro occasionally visits the UK client and does some work at the client site.

Pedro will not spend enough time in the UK to become a UK tax resident and will maintain his tax residency position in his home country.

Pedro hears about IR35 legislation and decides to take some pre-emptive action. He is sure that he will have a permanent establishment in the UK by nature of the time he spends working at the client site.  His view on the IR35 status of the contract is that he isn't sure whether it lies in or outside. He decides to consider it as inside IR35 and will take steps to pay taxes accordingly.

Now what happens? Does Pedro need to set up a UK company in order to declare the income derived from Pedro's work days in the UK? 

How are the income tax and national insurance components of Pedro's UK sourced income determined? Is it possible that only income tax will be due if the tax treaty between the UK and Pedro's home country dictate that social security payments are due only where he is tax resident?

Replies (5)

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the sea otter
By memyself-eye
08th Feb 2016 15:46

Pedro should

Talk to his accountant.

Who, presumably is called Miguel.

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Replying to Paul Crowley:
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By cedricthefrog
09th Feb 2016 15:35

Miguel doesn't know. Does Pedro need to get a UK accountant?

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By Gary Stevens
09th Feb 2016 16:02

Can you have a UK permanent establishment simply by spending time working at a UK client site? Are you sure about this?

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By cedricthefrog
09th Feb 2016 16:41

I'm not at all sure but I assume the worst for this scenario. 

I'm really more interested in the reach of IR35. The Gov.uk site seems to be extremely unclear about when or to whom IR35 might apply. Or if not unclear, certainly evasive.

As a foreigner doing business in the UK can Pedro get into a situation when IR35 could affect him or the client?

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By Gary Stevens
09th Feb 2016 18:09

"Pedro occasionally visits

"Pedro occasionally visits the UK client and does some work at the client site." - he is using his own equipment, is an independent consultant and seems to mostly work from his own office. He is occasionally visits the UK and has a meeting with them and will do a little work there. I just see nothing here that would make him inside IR35. It's completely normal for a consultancy to sometimes (or even a lot) to visit client sites to consult and do some work. Personally, I think Pedro is worrying too much. But my advice would be to speak to somebody who specialises in looking at contracts and working practices before giving an inside/outside IR35 status.

Also - I highly doubt you can create a permanent establishment for a foreign business simply by coming to work at client sites on a few occasions each year.

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