You run your work through your own limited company, and your new client is based abroad with no office in the UK. So who decides whether IR35 applies to you now? You, or them?
It's a fair question, and the answer trips up a lot of contractors. The off-payroll rules that put the decision on the end client don't always reach across borders. When your client is wholly overseas, the responsibility can land right back on your company.
This guide explains who's on the hook for the IR35 decision when an overseas client is involved, the one test that changes everything, and what it means for your tax. It's written for UK-resident contractors and consultants working through a personal service company (a PSC, meaning your own limited company).
What are the two sets of IR35 rules?
People say "IR35" as if it's one thing. It's really two sets of rules sitting in the same Act.
The original rules, in Chapter 8 of ITEPA 2003, have been around since 2000. Under these, your own company is responsible for deciding whether you'd be an employee if you worked directly. If IR35 applies, your company works out a "deemed employment payment" and runs PAYE on it.
The off-payroll rules, in Chapter 10, came to the private sector on 6 April 2021. These shift the decision onto the end client. A medium or large client must assess your status, give you a Status Determination Statement (an SDS), and the fee-payer in the chain deducts tax and National Insurance before paying you.
Which set applies to you depends on who your client is and where they're based. That's the whole game when an overseas client is in the picture.
Does IR35 apply if my client is overseas?
Yes, IR35 can still apply. Being a UK-resident contractor doesn't get you out of it just because the work or the client sits abroad.
But here's the key point. The off-payroll rules in Chapter 10 only bite where the client has a UK connection. HMRC's guidance is clear: where a medium or large non-public-sector client is based wholly overseas with no UK connection immediately before the start of the tax year, "the rules at Chapter 10, Part 2 ITEPA 2003 do not apply".
When Chapter 10 falls away, you don't simply escape IR35. HMRC says the worker's intermediary "should instead consider whether Chapter 8, Part 2 ITEPA 2003 applies". In plain terms, the older rules step back in, and the decision is yours to make through your own company.
So the question isn't really "does IR35 apply", it's "which version applies, and who has to make the call".
What counts as a UK connection?
This is the test that decides everything, so it's worth getting right.
A client has a UK connection if it's resident in the UK or has a UK permanent establishment immediately before the start of the tax year. A permanent establishment, in HMRC's words, includes "a fixed place of business which includes, amongst others, a branch, an office or a factory". It can also include a UK agent who has and habitually exercises authority to do business for the client.
If the client has none of that, it's "wholly overseas" and the off-payroll rules don't reach it.
One detail catches people out. A UK-based agency or intermediary that you supply through does not, by itself, give the overseas client a UK permanent establishment. The connection has to be the client's own UK presence, not yours.
Who decides my IR35 status with an overseas client?
It comes down to whether your overseas client has that UK connection.
| Client situation | Which rules apply | Who decides your status |
|---|---|---|
| Overseas client with a UK branch, office or other permanent establishment | Off-payroll (Chapter 10) | The client, via an SDS |
| Overseas client, wholly overseas, no UK connection | Original IR35 (Chapter 8) | You, through your own company |
| Small UK client (private sector) | Original IR35 (Chapter 8) | You, through your own company |
If your overseas client has a UK permanent establishment, the off-payroll rules apply and the client carries the responsibility. HMRC confirms that "it is the overseas client who is responsible for discharging its responsibilities (such as issuing an SDS)", and if it fails to do so, HMRC "will pursue this debt through the UK permanent establishment".
If your client is wholly overseas, the off-payroll rules drop away and you're back under the original rules. Your company must judge whether the contract is inside or outside IR35, and if it's inside, account for the tax. That's the same position you're in with a small UK client, where the worker's intermediary is responsible for deciding employment status.
In practice, the mistake we see most often is a contractor assuming an overseas client means "no IR35 to worry about". It usually means the opposite: the decision, and the risk of getting it wrong, sits with you.
How do I work out if my client is small or wholly overseas?
Two checks, in this order.
First, is the client wholly overseas? Ask whether they're UK resident or have any UK fixed place of business, branch, office or UK agent acting for them. If the answer to both is no, they're wholly overseas and the original rules apply to you.
Second, if the client does have a UK connection, is that UK entity small? A private-sector client is small for off-payroll purposes if it fails to meet two or more of these conditions: annual turnover not exceeding £10.2 million, balance sheet total not exceeding £5.1 million, and 50 or fewer employees. If the client is small, the original rules apply and the decision is yours. If it's medium or large, the off-payroll rules apply and the client must give you an SDS.
Get this in writing where you can. If a client tells you they have no UK presence, a short email confirming that is worth keeping with your contract.
What does inside IR35 cost me on an overseas contract?
If you're under the original rules and you decide a contract is inside IR35, your company calculates a deemed employment payment and taxes it broadly as salary. To show the income tax effect, here's a simple illustration.
Illustrative example
Priya is a UK-resident IT consultant working through her own limited company for a US client with no UK office. The contract is inside IR35, so most of the income is taxed as employment income. Say the deemed employment income works out at £80,000 for 2025/26, and Priya has no other income.
Her income tax for 2025/26 would be:
| Band | Income in band | Rate | Tax |
|---|---|---|---|
| Personal Allowance | £12,570 | 0% | £0 |
| Basic rate | £37,700 | 20% | £7,540 |
| Higher rate | £29,730 | 40% | £11,892 |
| Total | £80,000 | £19,432 |
That's £7,540 plus £11,892, giving £19,432 of income tax before National Insurance. The personal allowance is £12,570 for 2025/26, the basic-rate band runs to £37,700 of taxable income, and income above that up to £125,140 is taxed at 40%.
National Insurance is its own knot on overseas work. The deemed payment under the original rules is calculated for income tax, and the NIC position depends on which country's social security system you fall under, which often turns on where you actually do the work and any social security agreement in place. It's worth taking advice rather than guessing.
If the same contract were outside IR35, Priya could pay herself a mix of salary and dividends and the tax picture would look very different. You can sketch your own numbers with our take-home pay calculator before deciding how to structure things.
This example is for illustration only and ignores expenses, pension contributions and the detailed steps of the deemed payment calculation. Your own figures will differ.
Decision steps: who is responsible for my status?
A quick walk-through for any new overseas contract:
- Is the client UK resident or do they have a UK permanent establishment (branch, office, factory or UK agent)? If no, they're wholly overseas: the original rules apply and you decide your status.
- If they do have a UK connection, is the UK entity small (fails two or more of the £10.2m turnover, £5.1m balance sheet, 50-employee tests)? If small, the original rules apply and you decide.
- If the client is medium or large with a UK connection, the off-payroll rules apply and the client must issue you an SDS.
- If the decision is yours and the contract is inside IR35, your company calculates the deemed payment and accounts for the tax.
- Keep evidence of the client's status, the contract terms, and how you reached your conclusion.
Getting an honest status assessment matters because the liability for an outside-IR35 call that should have been inside sits with your company under the original rules. If you'd like a second pair of eyes, this is exactly the kind of work our IR35 specialists for contractors handle day to day.
Working with US-based clients adds another layer, from invoicing in dollars to cross-border reporting. Our US CFO services help UK contractors and consultants keep the transatlantic side clean.
Not sure who's responsible for your IR35 status on an overseas contract? Book a free 20-minute call with a Zmartly accountant. We'll check your client's UK connection, review your contract, and tell you plainly whether the decision is yours and what it means for your tax. Talk to a Zmartly accountant.
Frequently asked questions
If my client is wholly overseas, am I outside IR35 automatically?
No. A wholly overseas client only means the off-payroll rules don't apply, so the decision returns to you under the original IR35 rules. You still have to judge whether the engagement is inside or outside IR35, and account for the tax if it's inside.
Does being a UK resident matter for IR35 on overseas work?
Yes. IR35 is built around your UK-resident company and your tax position here. Working for a foreign client or even working abroad doesn't switch off the rules. What changes is which version applies and who makes the determination.
My overseas client has a UK office. Who decides my status?
The client does, provided it's medium or large. An overseas client with a UK permanent establishment is responsible for assessing your status and issuing a Status Determination Statement, and HMRC can pursue any unpaid tax through that UK presence.
Does a UK agency in the chain give my overseas client a UK connection?
No. HMRC's guidance is that a UK-based intermediary or agency you supply through does not, on its own, create a UK permanent establishment for the client. The UK connection has to come from the client's own UK presence.
What happens to National Insurance if I'm inside IR35 with an overseas client?
The deemed payment under the original rules is worked out for income tax. The National Insurance position depends on which country's social security system covers you, which usually turns on where you carry out the work and any social security agreement between the UK and that country. Take advice before assuming UK NIC applies.
