Digital Nomad Contracting: Tax, Banking and Legal Pitfalls UK Contractors Miss
The appeal of contracting remotely from abroad - combining UK rates with lower living costs or favourable climates - is real and growing. But the legal and tax complexity is equally real, and getting it wrong can be expensive.
Tax Residency: The First Risk
UK tax residency is determined by the Statutory Residence Test (SRT), which assesses how many days you spend in the UK and the nature of your ties here. If you spend fewer than 183 days in the UK in a tax year and meet certain other conditions, you may cease to be UK tax resident - which has significant implications for how your contractor income is taxed. However, this cuts both ways: the country you're working from may consider you tax resident there, creating double taxation risk. This is complex territory that requires professional advice specific to your circumstances and destination country.
IR35 Complications Abroad
Your IR35 status is determined by the nature of your engagement with the client, not your physical location. Working from Portugal or Spain doesn't change your IR35 position. However, if you're operating through a UK limited company from abroad, you need to consider whether your company's management and control could be deemed to be located in the country you're working from - which could create local corporate tax obligations in that jurisdiction.
Banking and Payments
UK limited company directors working abroad may find their business banking becomes complicated. Some UK business banks are restrictive about directors who are not physically resident in the UK. Make sure your bank account terms allow for non-UK residency before you go. Currency exposure is also a consideration if you incur expenses in the local currency while being paid in sterling - a significant currency movement over a six-month contract can materially affect your effective income.
Client and Contractual Considerations
Not all clients are comfortable with their contractors working from abroad, even if the work is fully remote. Data security policies, regulatory requirements and simple management preference all create reasons for clients to require contractors to be UK-based. Check your contract carefully for any clauses requiring UK presence and discuss the position with your client before making arrangements - it is far better to surface this conversation early than to be in breach of your contract mid-engagement.
Professional Advice Is Essential
The combination of tax residency, IR35, corporate tax, double taxation treaties and banking all interact in ways that are highly specific to individual circumstances and destinations. Before making any decision to contract from abroad for a significant period, invest in advice from a contractor-specialist accountant and potentially a lawyer familiar with the destination country. The cost of professional advice is trivially small relative to the potential cost of getting it wrong.
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Sources & further reading
1. GOV.UK - Statutory Residence Test (HMRC guidance)
2. GOV.UK - Tax on foreign income
3. ContractorUK - Working abroad as a UK contractor
4. Freelancermap - IT Freelancing Trends 2026 (digital nomad section)