Engaging Freelancers Based Outside the UK: Do You Need to Worry About Employment Status and Payroll?

Creative agencies increasingly hire global talent. From illustrators in Poland to video editors in South Africa and UX designers in Canada. It’s fast, flexible and opens the door to brilliant new perspectives.

But one question comes up again and again:

Do the usual UK employment status tests apply and do you need to put overseas freelancers on UK payroll?

The golden rule: UK payroll only applies when the work is taxed in the UK

HMRC’s PAYE and National Insurance rules usually only bite when UK tax is due on the income.
And for most overseas freelancers, that comes down to where the work is actually carried out.

If the freelancer:

• lives overseas

• performs all of the work overseas

• has no UK “presence” while doing the work

…then UK PAYE and NIC are generally not required.

This is true even if, hypothetically, they would fail the normal UK employment status tests.

TAX RESIDENCY ≠ PHYSICAL LOCATION

This distinction matters.

It’s possible to be:

• UK tax-resident while living abroad, or

• non-UK-resident while physically living in the UK

UK tax residency is decided by the Statutory Residence Test, not geography.

Why this matters:

✔ If the overseas freelancer is still UK tax-resident

They may owe UK tax on worldwide income.

PAYE might still apply unless they qualify for specific reliefs.

From 6 April 2025, some UK-resident employees working overseas will qualify for Overseas Workday Relief, reducing UK tax on non-UK duties — but this applies to employees, not freelancers.

✔ If the freelancer is non-UK-resident

And the work is performed overseas?

Then UK PAYE and NIC don’t apply.

Bottom line:
You need to confirm tax residency and work location, not just where someone currently lives.

IR35 doesn’t apply to overseas freelancers

IR35 applies only where:

• the worker is UK tax-resident or

• the work is performed inside the UK

Your overseas designer working abroad, even through their own company, is outside IR35 scope.

No UK National Insurance = cost saving

Non-UK-resident freelancers performing overseas work are outside the UK NIC system.

That means:

• No employer NIC

• No employee NIC

• No auto-enrolment pensions

• No apprenticeship levy

Compared with a UK employee, this is a significant cost saving for UK creative agencies.

The IP trap: UK law is not “work-for-hire”

A major source of disputes.

In the US, “work-for-hire” means the client automatically owns the IP.

Not so in the UK.

Under UK law:

✔ A freelancer automatically owns the copyright

…unless the contract explicitly assigns it to you.

Many overseas contracts use US-style “work for hire” wording that does not transfer ownership under UK law.

If you want rights to assets such as:

• illustrations

• animation files

• video edits

• branding

• code

• design templates

…you must ensure the contract includes a valid UK-law IP assignment clause.

This is essential for creative businesses.

Overseas employment law risk: MUCH higher than UK agencies expect

Countries like Germany, France, Spain, Italy and the Netherlands have extremely strict rules on worker classification.

If your “freelancer” should legally be treated as an employee under local law, the penalties can be severe:

Germany

• Fines up to €10 million

• Criminal liability for executives

• Up to 5 years’ imprisonment in extreme cases

France

• Up to 3 years in prison

• Fines up to €45,000 for individuals

• Back-dated employer social charges

Spain

• Heavy fines and full back-payment of social security

This is a material compliance risk — far more serious than UK-style HMRC disputes.

Your contract should clearly state:

• the freelancer controls their own hours

• they provide their own equipment

• they are responsible for their own taxes locally

• they work with multiple clients

• they are genuinely independent

When might UK payroll still apply?

UK PAYE/NIC may still be required if:

✔ The freelancer performs any work in the UK

Even short trips for shoots or meetings can trigger UK tax on those UK workdays.

✔ The individual is UK tax-resident

Tax liability follows residency, not location.

✔ You accidentally create a UK employment relationship

The usual UK employment status factors (control, substitution, Mutuality Of Obligation etc.) apply if the work is in the UK or the worker is UK-resident.

✔ The Globally Mobile Employee PAYE rules apply

From 6 April 2025, UK employers must make enhanced PAYE notifications for employees working overseas.

This won’t apply to freelancers but agencies need to recognise the distinction.

Do you need an Employer of Record? Clarifying the confusion

Some agencies believe they “need an EOR” whenever hiring overseas.

Let’s clarify:

❌ You do NOT need an EOR for genuine freelancers

If the freelancer is truly self-employed under local law, they invoice you normally.

✔ You may need an EOR if:

• you want to hire someone overseas as an employee,

• you need to comply with local employment laws, or

• the person is functionally an employee and would be misclassified as a freelancer

EORs are not about HMRC, they’re about foreign employment law compliance.

VAT rules for overseas freelancers

If an overseas freelancer provides services to a UK VAT-registered business, the reverse charge applies:

• They don’t charge local VAT

• You account for both output and input VAT on your VAT return

• Cash impact = zero

If you are not VAT-registered, you simply ignore this.

GDPR and cross-border data transfers

If your freelancer accesses:

• client data

• footage featuring individuals

• CRM systems

• personal data for payroll/HR

• analytics data

…then GDPR/UK GDPR applies.

You must:

• use appropriate data-processing agreements

• ensure the transfer mechanism is valid (e.g. Standard Contractual Clauses)

• assess the destination country’s data-protection standards

• document your assessment

This often gets overlooked and can cause compliance issues.

 Practical tips for UK creative agencies

✔ Confirm tax residency and work location
Don’t assume.

✔ Use contracts with strong UK IP assignment
Particularly important for design, video and code.

✔ Get clarity on local employment laws
Some countries are strict.

✔ Document independence
Scope, work location, control, equipment, etc.

✔ Be mindful of data-protection requirements
Especially if sending video files, raw footage or personal client data overseas.

✔ Keep invoices and contracts that show the freelancer is responsible for local taxes

The bottom line

Engaging freelancers overseas is perfectly workable — and often cost-effective — but you must understand the boundaries:

• If the freelancer is non-UK-resident and works entirely abroad, UK payroll almost never applies.

• Tax residency matters as much as work location.

• You need proper IP assignment clauses.

• Foreign misclassification penalties can be severe.

• No UK NIC = genuine cost saving.

• GDPR and cross-border privacy rules must be respected.

With the right contracts and documentation, working with global creative talent can be seamless, compliant and a real strategic advantage for your agency.