Recruitment agencies who make contract placements in the UK have the potential to open up their offering to overseas companies as there is often the same requirement in other countries, particularly in the IT, telecom, finance and engineering sectors. The pay and charge rates on these kind of placements may be higher but the additional costs, potential currency losses and risk to the agency need to be factored in to ensure the profit margins are maintained. The agency also needs to ensure they are correctly set up with currency accounts, finance and the capability to handle invoicing and payments to different countries before they start making placements.
Below is a list of compliance issues that agencies need to be aware of when deciding to start making contract placements outside of the UK:-
1. Currency and Banking Issues
When making international placements it is unlikely that the charge to the client or pay rate to the candidate will be in sterling so you need to ensure you are prepared and reducing any potential currency losses. The client will often dictate the currency the placement will be charged in and so it is important to ensure that the candidate is paid in the same currency to reduce any large currency losses on the placement. It is also important to ensure you have the currency account set up so when the payment is made to the contractor the agency is in control of any currency conversions. Making international placements will also incur larger banking fees so you may want to decide to pay the contractors monthly instead of weekly to reduce these costs.
2. Funding Requirements
Most agencies will use some kind of finance to fund their contract placements but not all finance companies have the capability to provide funding in all countries or in all currencies. Therefore, if your agency decides to start making international placements it is advisable to find out which countries and currencies your finance company can support. If the finance company can support the placement then they will set up a currency ledger to run the finance through to reduce any currency losses on the placements.
3. Withholding Taxes
Some countries have different tax regulations for clients paying for staffing services to companies based outside of their own country. Often this will result in the overseas company having to withhold a percentage of the invoice value and pay this to the tax authority in the country. However, the UK has negotiated many double taxation agreements which, if you can provide the required documentation (often a certificate or residence from HMRC), can reduce or eliminate this tax being deducted. If it cannot be eliminated then it can often be offset against your agency corporation tax bill to avoid double taxation.
4. Contractor Payments and Taxation
As is the case for UK placements where the agency needs to ensure that the candidate is paying the correct UK taxes, the same needs to be considered for International placements. It is important to understand the tax regulations for contractors in the country where the services are carried out to ensure that there are no repercussions for the agency or in some circumstances the client. The contractors’ tax residency may change depending on the duration of the placement which will have an impact on where the taxes are payable so it is important that the umbrella/limited company processing the payroll is calculating this correctly.
5. Visas and Work Permits
When placing a candidate overseas you need to ensure that the contractor is eligible to work in the country for the duration of the contract. Arranging Visas and work permits can have an additional cost and may take time to get in place so this needs to be considered before the placement is made.
6. Contract Law Legislation
When a client signs the agency’s terms of business these are usually agreed under English Law. However, if the client decides to impose their own contract on the agency then this will likely change the jurisdiction which applies. This change can have implications when bringing legal action under the contract or whether the finance company can provide funding when the contract is not under UK law.
7. VAT Reverse Charge
When raising invoices to companies outside of the UK there is no VAT chargeable on these services as long as the invoices reflect the clients VAT number on the invoice. By showing the clients VAT number on the invoice this ensures that the VAT is reversed and no VAT is payable by the client or declared by the UK agency on the invoices raised.
TBOS helps many recruitment agencies manage their international contract placements by helping to arrange the appropriate finance with its range of invoice finance providers (or by using our TBOS Freedom model) and also work with the agency’s bank to set up the required currency bank accounts. TBOS also gives advice and help to the agency to ensure that the placement complies with any country and tax regulations to avoid any repercussions to the agency or any come backs to the client.
For more information on how TBOS can help manage your international contract placements please contact our office on 0845 881 1112.