Entity Setup
Entity Setup for International Contractors: UK IR35 and Structuring Insight
When working through personal service companies or abroad, understanding IR35 and offshore options is key for contractors to minimise risk and optimise tax benefits.
By NomadicTax Research Team • 5-8 min read • September 3, 2026
## What is IR35 and why it matters
IR35 refers to the UK rules governing **off-payroll working**, aimed at identifying contractors who are effectively employees in everything but name. If you’re under IR35 and treated as working “inside IR35”, you face PAYE income tax and National Insurance liabilities, losing access to dividend tax advantages. ([gov.uk](https://www.gov.uk/government/consultations/off-payroll-working-calculation-of-paye-liability-in-cases-of-non-compliance/off-payroll-working-ir35-calculation-of-paye-liability-in-cases-of-non-compliance?utm_source=openai))
## Recent activity and consultation
While there are no brand new policy changes specific to IR35 in the past 30 days, the UK government has consulted on **sharing PAYE and NIC liabilities** between client and worker in cases of non-compliance—aiming to address fairness where tax/NICs have already been paid by the worker or an intermediary. ([gov.uk](https://www.gov.uk/government/consultations/off-payroll-working-calculation-of-paye-liability-in-cases-of-non-compliance/off-payroll-working-ir35-calculation-of-paye-liability-in-cases-of-non-compliance?utm_source=openai))
## Structuring tips for contractors
### Using a Personal Service Company (PSC)
- Running services through a UK-based limited company can provide access to **corporation tax rates**, **dividends**, and **business expense deductions**. Just be mindful of IR35 risk and ensure contracts/services satisfy self-employment tests.
### Employments through Agency or Umbrella companies
- Umbrella companies may reduce IR35 exposure as they often handle PAYE; but fees and reduced control over expenses are trade-offs.
### Working internationally or abroad
- If you're non-UK resident or working overseas, structuring via a foreign entity might help, but must watch **Statutory Residence Test (SRT)**, double taxation agreements, and source of income rules.
## Statutory Residence Test basics
An individual is UK-resident for tax purposes if they spend **183 days or more** in the UK in a tax year (one of the automatic UK tests). ([gov.uk](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20320?utm_source=openai))
Even if you stay under 183 days, other tests (like having a home in the UK, or working days count) may trigger residence.
## Case scenario
- **Clara** is a contractor under a PSC, with UK clients but physically working from Spain for 7 months (ca 210 days). She’d likely be UK-resident under the 183-day rule, so her global income could be taxable in the UK. Contracts alone won’t protect if physical presence triggers residence.
- **Daniel**, another UK national, lives part year in UK and part abroad. He avoids UK residence by clocking fewer than 183 days and ensuring he has no UK home or significant ties. But IR35 still applies for his UK client engagements—thus contract terms and actual behaviour matters.
## Actionable structuring advice
- Review your contracts, control, substitution clauses, and risk alignment: do they support self-employment status under IR35?
- Maintain clear records of travel, days in UK, ties and home availability to monitor SRT.
- Factor in foreign tax credits and treaty claims if working from another country.
- Consider seeking professional advice before restructuring or moving non-UK resident status due to the complexity and risks.
**Takeaway:** If you’re contracting — either through PSC or abroad — mastering IR35 compliance and understanding the SRT are foundational to structuring effectively, reducing risk, and maximising legitimate tax efficiency.