The UK is an easy market to pay into and a demanding one to classify. Money moves in real time over Faster Payments, there has been no exchange control since 1979, and a business customer abroad pays no UK VAT on services. The hard part is employment status, where the UK runs two tests: IR35 for tax when the contractor works through a company, and employment law’s own statuses for everyone. For a company outside the UK the IR35 rules are gentler than their reputation, as long as it keeps no UK presence.
Sole trader or limited company
UK contractors work in one of two ways.
Sole trader. The person registers for Self Assessment once trading income passes £1,000 in a tax year, by 5 October after that year ends (gov.uk; gov.uk, checked 2026-09-29). They invoice in their own name and are paid into a personal or business account in that name. IR35 does not apply, because there is no intermediary; status is judged directly.
Limited company. Many contractors incorporate, which costs £100 online at Companies House and usually takes a day; directors must verify their identity first (gov.uk, checked 2026-09-29). A one-person company that sells its owner’s work is a personal service company (PSC), and that is the structure IR35 was written for. You contract with and pay the company, not the person.
Taxes and National Insurance
| Sole trader | Limited company | |
|---|---|---|
| Main tax | Income tax 20% to £50,270, 40% to £125,140, 45% above, after a £12,570 personal allowance that tapers away above £100,000; Scottish bands differ | Corporation tax 19% on profits up to £50,000, 25% above £250,000, marginal relief between |
| National Insurance | Class 4 at 6% on profits from £12,570 to £50,270, 2% above; Class 2 is treated as paid on profits of £7,105 or more | Paid on any salary the director takes |
| Owner’s extraction | — | Dividends above a £500 allowance taxed at 10.75%, 35.75% or 39.35% |
| Filing | Self Assessment; Making Tax Digital for Income Tax since April 2026 for qualifying income over £50,000 | Company accounts and corporation tax return, plus the director’s Self Assessment |
Sources: income tax rates, self-employed National Insurance, corporation tax rates, tax on dividends, Making Tax Digital; all gov.uk, 2026/27 figures, checked 2026-09-29.
A foreign client withholds nothing from either. The contractor pays their own tax and National Insurance.
IR35 and the off-payroll rules: who decides when you are overseas
IR35 asks whether a contractor working through their own company would be an employee if they contracted with the client directly. Two sets of rules share the name.
- Chapter 10 ITEPA 2003, the off-payroll working rules. A public authority or a medium or large private client decides the contractor’s status, issues a Status Determination Statement, and the fee-payer deducts tax and National Insurance if the engagement is inside (gov.uk, updated February 2026, checked 2026-09-29).
- Chapter 8 ITEPA 2003, the original IR35. The contractor’s own company decides, and if the rules apply it works out a deemed employment payment after a flat 5% expenses deduction and pays the tax itself (gov.uk, checked 2026-09-29). It covers small clients and clients abroad.
A client with no UK connection. A client that is not UK resident and has no UK permanent establishment immediately before the tax year begins is wholly overseas, and Chapter 10 does not apply to it; the contractor’s company considers Chapter 8 instead. The contractor’s UK company is not your permanent establishment, but a branch, an office or an agent who habitually exercises authority to do business for you can be (HMRC ESM10025; ESM10006, updated July 2026, checked 2026-09-29).
A client with a UK branch. Size then matters. HMRC’s manual counts a company as medium or large if it has two of: turnover above £10.2 million, a balance sheet above £5.1 million, more than 50 employees (ESM10006). The Companies Act limits behind that test rose to £15 million and £7.5 million for accounting periods from 6 April 2025, which RSM expects to apply to most companies from the 2027/28 tax year (rsmuk.com, checked 2026-09-29). HMRC’s CEST tool helps with the decision (gov.uk, checked 2026-09-29).
The tests are the familiar ones, applied to the substance rather than the contract: control over how the work is done, personal service and whether a real substitute can be sent, and mutuality of obligation. The glossary entry on IR35 covers them, along with the umbrella company route for inside engagements.
Employment status outside tax
Tax status and employment-law status are separate questions, and a person can have a different status in each (gov.uk). Employment law has a middle category, the worker: someone who must do the work personally, with only a limited right to send someone else. Workers are owed the National Minimum Wage, statutory paid holiday and protection against unlawful deductions (gov.uk, checked 2026-09-29). IR35 does not reach a sole trader, but a sole trader can still be a worker if the engagement looks like a job.
Contract and IP assignment
- A written services agreement with the sole trader or the company, scoped to deliverables, rate and currency.
- IP assignment in writing. Under the Copyright, Designs and Patents Act 1988 the author is the first owner of copyright (s.11); the employer rule in s.11(2) applies to employees only. An assignment is not effective unless it is in writing signed by the assignor (s.90(3)), and a signed agreement can assign future copyright so that it vests on creation (s.91). With a limited company, check that the company holds the rights of the person who does the work before it assigns them, or have that person sign as well.
- Moral rights. The right to be identified does not apply to computer programs (s.79); for design, copy or other work, take a written waiver signed by the author (s.87, all checked 2026-09-29).
- Independence terms that match reality: a genuine right of substitution, the contractor’s own tools and hours, freedom to work for others.
VAT and paperwork on your side
VAT. The general B2B rule puts the place of supply where the customer belongs, so a UK contractor charges no UK VAT to a business abroad (VAT Notice 741A, section 6.3). The standard rate is 20% and registration applies above £90,000 of taxable turnover; a contractor who only makes out-of-scope supplies does not have to register (gov.uk, checked 2026-09-29).
US payers. Collect a W-8BEN from a sole trader or a W-8BEN-E from a limited company and file no 1099. The US–UK treaty was signed on 24 July 2001 and has been in force since 31 March 2003 (congress.gov); it treats independent services as business profits and matters only if the contractor works while in the US.
Keep the contract with the signed assignment, the invoices, proof of payment and a record that your company has no UK establishment.
How to pay contractors in the UK
| Method | What the contractor sees | Notes |
|---|---|---|
| Provider paying GBP locally | GBP by Faster Payments, in real time | Faster Payments has a £1 million scheme limit; banks set lower ones |
| SWIFT wire | USD or EUR converted by the receiving bank | Barclays charges £6 on payments over £100 and up to 2.75% to convert for personal customers |
| SEPA | EUR on a UK EUR account | The UK stays in the SEPA schemes |
Domestic GBP payments also get a Confirmation of Payee name check, so a limited company must be paid under its registered name (Pay.UK; barclays.co.uk, checked 2026-09-29). Rails, fees and platforms compared side by side: how to pay contractors in the United Kingdom.
Contractor of Record in the UK
A Contractor of Record signs with the contractor and invoices you, so it stands between you and the contractor as the contracting party. 4dev acts as Contractor of Record — the contracting party for each contractor — which reduces reclassification risk. Deel, Remote, Multiplier and Native Teams sell Contractor of Record products as well; read the liability clause in the contract, not the product name. For a company with no UK presence, where the contractor’s own company already carries the IR35 decision, the case for a COR rests on the employment-law side and on keeping contracts, IP assignments and invoices in one place across a team. For engagements that are really jobs, use an Employer of Record instead. Compare providers in our COR rating.