If you work outside the UK or your client is based overseas, IR35 rules can become more complicated. The aim of these rules is to stop people who are really working like employees from avoiding the right amount of tax by using a Personal Service Company (PSC). This is where the question often comes in does IR35 apply to non-UK companies? In simple terms, IR35 makes sure that if your role is more like a job than true self-employment, you are taxed like an employee.
When you are Inside IR35, it means your client sees you as working like their employee, so you must pay taxes like PAYE along with National Insurance. Being outside of IR35 allows you to handle your taxes in a different way and is regarded as a valid contractor.
At SAS KPO Services, we help businesses and contractors navigate complex tax and compliance matters like IR35. As an accounts outsourcing firm, we make sure our clients understand their status and meet all requirements while focusing on growing their business.
Who needs to follow IR35 rules and who does not?
IR35 rules are for people who give their services through another company (called an intermediary) and for the clients who hire them. This can also include recruitment agencies that hire contractors. Who decides if IR35 applies depends on the client’s size.
Public organisations, as well as medium and large companies in the private sector, must check if a contractor falls inside IR35. They also need to give the contractor a statement explaining their decision. IR35 usually applies to limited companies but not to umbrella companies (used by some recruitment agencies to pay temporary workers).
Does IR35 apply to non-UK companies? It can if the work is done for a UK-based client and meets the rules.
IR35 for contractors is not necessary for small firms. In this case, the contractor must decide if the rules apply to them. A business is small if it meets at least two of these:
- Annual turnover is £10.2 million or less
- Balance sheet is £5.1 million or less
- Has fifty or fewer employees
IR35 for non-UK companies
Yes, sometimes IR35 can apply to non-UK companies, but it depends on the situation.
How it works:
- IR35 targets people who do work like an employee but through a company (a Personal Service Company).
- If the work is done in the UK, the rules can apply no matter where the company is based.
- UK tax residents are covered by IR35. If they work through a company, medium or large clients must decide if the role is inside or outside IR35.
- Non-UK contractors who are not UK tax residents usually are not covered it depends on tax residency and where the work happens.
- Some nations and the UK have reciprocal agreements (RAs) regarding social security. These agreements can change how long someone stays on their home country’s system (for example, the US RA can limit this to about five years).
When a non-UK client may be caught by IR35:
- If the non-UK company has a UK presence (an office, branch, or hires UK workers), it may need to follow IR35 rules.
- That means the client could have tax and reporting duties for contractors working in the UK.
Practical tip:
Do not use one blanket decision for all contractors. Check each person’s working situation separately to see if IR35 applies.
Understanding worker status under IR35: what is an SDS?
When it comes to IR35 rules, one key document you need to know about is the Status Determination Statement (SDS).
Think of the SDS as a clear report from your business that explains whether a worker should be treated as an employee or as a contractor after you have done an IR35 check. But it is not just about ticking a box the SDS must also show why you have made that decision.
HMRC has a tool called Check Employment Status for Tax (CEST) that can help with this. By using this, businesses can carefully review working arrangements and make sure they are classifying people correctly. This protects both your business and the worker, and it proves that you have taken reasonable care when making the decision.
It is also important to know that until you give the worker their SDS and explain your decision, your company is responsible for deducting income tax and National Insurance contributions. So, communicating your decision clearly and on time is essential. In short, the SDS is not just paperwork it is part of your responsibility to stay compliant, treat your workers fairly, and keep your business safe from costly mistakes.
IR35 updates that came in April 2025: What you needed to know
By 2025, IR35 had already been a big headache for both contractors and businesses. The government introduced recent changes in April 2025 with the aim of making things easier, reducing confusion, and improving compliance.
So, what changed?
No more double taxation problems:
Before April 2025, if a client said a contractor was outside IR35 but HMRC later disagreed, the client could get a huge tax bill even if the contractor had already paid tax through their own limited company. That often wanted to pay tax twice for the same work. After the changes, HMRC started considering the tax that contractors had already paid, which came as a huge relief for many businesses.
Clearer liability rules:
The 2025 updates also made it clearer who was responsible if tax had not been paid especially in supply chains with agencies or umbrella companies. This made it easier for businesses to understand where the responsibility sat.
Better transparency for contractors:
The government pushed for more clarity in the way Status Determination Statements (SDS) were given. Contractors now had a clearer picture of how and why their IR35 status was decided.
Updated company size thresholds:
Another big shift came with the company size definition. Earlier, companies with a turnover of £10.2 million were treated as small. After April 2025, the threshold went up to £15 million. This meant some Personal Service Companies (PSCs), which did not need to make their own IR35 determination before, now had to do so.
And yes, during these updates, many businesses were also asking: Does IR35 apply to non-UK companies? This became an important part of the wider discussion, especially as global contractors worked with UK-based clients.
These updates did not replace the whole IR35 system, but they closed some unfair gaps and gave businesses and contractors a little more fairness and clarity. For many, it reduced risks and brought more confidence in managing contracts.
Moving forward with confidence in IR35
IR35 has always been a tricky area for contractors and businesses, especially with the 2025 changes and the added questions around non-UK companies. From Status Determination Statements (SDS) to new company size rules, staying compliant requires both time and expertise.
That is where SAS can support you. As a trusted accounts outsourcing partner, we help UK accountancy firms and contractors manage complex areas like IR35, payroll, and compliance with accuracy and clarity. Our team ensures you stay on the right side of the rules, while you stay focused on running and growing your business.
Need guidance on IR35 or outsourcing support?
Reach out to us today, let us simplify compliance together.
Shivani Soni (Digital Marketing Specialist) writes this blog