When you’re a UK contractor working through a personal service company (PSC), IR35 is always a key consideration. But what if your client is overseas, say, a company in Malta? Does IR35 still apply, and what are your options for getting paid compliantly?

Let’s break it down.

What is IR35?

IR35 is designed to stop individuals from working like employees but being paid through intermediaries such as PSCs to reduce tax. The test is simple:

If the PSC didn’t exist, would the contractor be an employee of the client?

If the answer is “yes”, then IR35 applies. The result: PAYE and National Insurance must be paid on the contract income.

Overseas Clients: Who’s Responsible?

Normally, if the client is a medium or large UK business, they must decide if IR35 applies and deduct PAYE/NIC at source.

But if the client is overseas with no UK presence, the responsibility falls back to the contractor’s PSC. This means:

  • The PSC must decide whether IR35 applies.

  • If it does, the PSC must calculate the deemed employment payment at year-end and run PAYE/NIC.

So even with an overseas client, IR35 can still bite.

What Are the Options if IR35 Applies?

1. Operate via an Umbrella Company

  • The umbrella employs you and puts you on PAYE.

  • Tax and NIC are handled for you.

  • Simple, but take-home pay is often lower due to umbrella fees and employer NIC.

2. Stay with Your Limited Company (PSC) and Apply IR35

  • You continue trading through your PSC.

  • Each year, you calculate a deemed employment payment and pay PAYE/NIC.

  • You lose many of the tax efficiencies of a PSC, but keep control and flexibility.

3. Direct Employment with the Client

  • If the client is willing, they can hire you as an employee.

  • Removes IR35 risk altogether.

  • Less common with overseas clients who don’t want UK payroll obligations.

4. Self-Employed (Sole Trader)

  • You could register as self-employed and invoice directly.

  • IR35 doesn’t apply (since there’s no intermediary), but HMRC can still apply the general employment status test.

  • If HMRC thinks you’re really an employee, they can reclassify the income, creating tax risk.

  • Works best if you have multiple clients and genuinely operate as a business.

5. Structure Work Outside IR35

  • With careful contract wording and genuine working practices (substitution rights, lack of control, financial risk), contracts can be outside IR35.

  • But this must reflect the reality of the engagement, not just the paperwork.

So, What’s the Best Route?

  • For simplicity: Umbrella is easiest.

  • For control: PSC under IR35 keeps your company alive but comes with admin.

  • For lowest risk: Direct employment (if possible).

Final Word

Working for overseas clients doesn’t make IR35 disappear. Contractors still need to consider employment status carefully and choose the structure that best balances compliance, simplicity, and take-home pay.

If you’d like help reviewing your options, get in touch.  Contact Us.