IR35 and Offshore Development Agencies: Why a Real SoW Is a Different Case

The UK off-payroll working rules (IR35) are unlikely to apply to an offshore agency's developers: HMRC's own manual says a worker who is not UK-resident and works outside the UK is unlikely to be chargeable to UK tax or NICs, and if they are not, the rules do not apply. A genuine outsourced-services contract also differs from supplying a worker. This is general information; confirm with your accountant.

This guide is for UK founders, finance leads and CTOs who have been through IR35 assessments for UK contractors and wonder whether the same process applies to an offshore development agency. RAITHub is a software studio in Dhaka, Bangladesh, so we are on the supplier side of this question. We are not tax advisers and nothing here is tax advice. Every situation depends on its facts; confirm your position with your accountant or tax adviser, for example an ICAEW Chartered Accountant, before you rely on it.

What is IR35, in plain terms?

IR35 is the common name for the off-payroll working rules. They exist so that a worker who provides services through their own company, or another intermediary, pays broadly the same income tax and National Insurance contributions (NICs) as an employee would, if they would have been an employee had they worked for the client directly (GOV.UK: understanding off-payroll working). An intermediary is usually a personal service company: a limited company owned by the contractor.

Since April 2021, public sector clients and medium or large private sector clients decide the worker's status and issue a status determination statement (SDS) explaining the decision. For small private sector clients, the worker's intermediary still decides (GOV.UK: off-payroll working changes for clients). HMRC's CEST tool (Check Employment Status for Tax) helps with the assessment.

The detailed rules are in Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, and HMRC explains how it reads them in its Employment Status Manual, which is the source for most of what follows.

Does IR35 apply to developers who work for an offshore agency?

Usually not, for two separate reasons: where the workers are, and what you are buying.

On the first, HMRC's manual is direct. In ESM10025, on international issues, it says: "A worker who is not UK-resident and is performing work outside the UK is unlikely to fall within the charge to UK tax or NICs. If the worker is not chargeable to UK tax or NICs, then the off-payroll working rules will not apply." The same page adds that the residency of the worker's intermediary does not need to be considered when deciding whether the rules apply.

So a developer who lives in Dhaka, is employed by a Dhaka company and writes your code in Dhaka is, on HMRC's own reading, unlikely to be within the rules at all. Note the word "unlikely": it is HMRC's word, and it is why this is a question for your adviser rather than a certainty.

The second reason applies even when the first is less clear, and it is the one worth understanding properly.

How is an outsourced-services SoW different from supplying a worker?

A statement of work (SoW) describes an outcome that a supplier delivers: a product, a module, a set of features with acceptance criteria. Supplying a worker means providing a person whose time you direct. HMRC treats these differently.

In ESM10010, on contracted-out services, HMRC says that "where a person enters into a contract for a fully contracted out service, they will not be the client" for off-payroll purposes. The rules are aimed at contracts with an intermediary "for the supply of a worker". HMRC looks at whether the service fits the supplier's business, who controls the specification and quality and carries the profit and risk, and who the worker personally provides services to. It also says that "the actual working practices must be taken into account as well as contractual terms".

Feature	Outsourced service under a SoW	Supply of a worker
What you buy	Defined deliverables with acceptance criteria	A named person's time, by the day or hour
Who decides how the work is done	The supplier, within your requirements	You, day to day
Who picks the people	The supplier, who can change them	You choose and approve the individual
Who fixes defects	The supplier, under the contract's terms	You pay more hours for the person to fix them
Pricing	Fixed scope, milestones, or a managed team fee	A rate per named person
Management	The supplier's lead manages the team	Your managers line-manage the person
Place in your organisation	An external vendor	Often in your org chart, rota and internal tools as staff

The right-hand column is what staff augmentation looks like. RAITHub does not offer it. We deliver fixed-scope projects or run a dedicated team that we manage, which sits in the left-hand column by design. Whether your specific contract and practices put you there is still a question for your adviser.

What should the contract and working practices show?

Because HMRC looks at practice as well as paper, the contract and the way you work need to tell the same story. A checklist to take to your adviser:

1. A SoW with deliverables and acceptance criteria, not a job description.
2. The supplier chooses and manages the team, and can replace people without your approval of each individual.
3. Defects are the supplier's responsibility within the agreed terms, not extra billable hours by default.
4. Pricing by scope or by managed team, not by named person.
5. The supplier's lead is the point of contact. Your people set requirements and accept work; they do not line-manage the supplier's engineers.
6. Work is done in the supplier's country, on the supplier's equipment, under its employment contracts.
7. Invoices come from the supplier company, not from individuals.

A dedicated team on a monthly fee can still be a managed service, as long as the supplier manages it. The difference between the two engagement models is covered in dedicated team vs fixed price, and RAITHub's own terms are on how RAITHub prices and structures engagements.

When does the IR35 question come back?

When one of the facts behind the answer changes. These are the cases to raise with your adviser.

• Someone in the chain is UK-resident or works in the UK. A UK-based contractor supplied through an overseas agency is a different case from engineers who live and work abroad.
• An engineer relocates to the UK, or starts working from the UK for a meaningful period.
• Visits to your office. Work done in the UK during a visit can raise UK tax questions even for a non-resident. Ask your adviser before planning regular on-site time.
• The engagement drifts into labour supply. Your managers start assigning daily tasks to named engineers, approving their hours and treating them as staff. The contract may say "service"; the practice says otherwise.
• The client is overseas with a UK branch. HMRC's international examples in ESM10026 show the rules can apply where an overseas client has a UK permanent establishment, such as a branch, and the chain includes a UK agency and worker.

Are there other UK questions besides IR35?

Yes, and they are separate from employment status. How VAT is accounted for on services bought from abroad, and how any UK personal data is protected when an overseas supplier can access it, are two that often come up. Both are for your accountant and your data protection lead. For how RAITHub handles access to code and data, see the security page: we sign data processing agreements and follow your controls, and we are not SOC 2 or ISO 27001 certified.

Why RAITHub for a UK company

• A service, not a secondment. Fixed-scope projects or a dedicated monthly team that we manage. No staff augmentation.
• Written scope and acceptance. After a free 15-minute technical audit, you get a fixed written quote with the deliverables and assumptions listed, which is also the document your adviser will want to read.
• Work you can verify. PropDesk, a property management platform, runs 1,024 tests and Stripe rent collection; Sundor Skin runs 146 PostgreSQL tables with row-level security and 530+ tests. Every engagement has a CI-gated test suite.
• Ownership and confidentiality. You own the IP; an NDA is standard. See the SaaS development service or the backend and API service.
• Working hours. Dhaka is 5 hours ahead of London in British summer time and 6 in winter, which gives 4 shared hours in summer and 3 in winter on a 9:00 to 18:00 day, as set out in Bangladesh vs India for software outsourcing.

When you don't need us

• You want individual developers inside your team, directed by your managers. That is staff augmentation, which we do not offer, and it is also the arrangement that raises the status questions above.
• You need people on site in the UK regularly. RAITHub has no UK office.
• You need tax or legal advice. RAITHub gives none. Speak to your accountant first.
• Procurement requires SOC 2 or ISO 27001. RAITHub holds neither.

HMRC and GOV.UK guidance checked on 29 September 2026. General information only, not tax advice; confirm with your accountant or tax adviser.

If a managed, fixed-scope engagement suits you, book the free 15-minute technical audit. You will get a written scope your adviser can review before anything is signed.

Frequently asked questions

Does IR35 apply to offshore developers?

HMRC's manual (ESM10025) says a worker who is not UK-resident and works outside the UK is unlikely to be chargeable to UK tax or NICs, and if they are not, the off-payroll rules do not apply. This is general information; confirm your case with your accountant.

Is hiring an offshore development agency the same as hiring a contractor?

Not necessarily. HMRC distinguishes a fully contracted-out service, where you are not the client for off-payroll purposes, from a contract for the supply of a worker. What matters is both the contract and how the work is actually managed.

What makes a statement of work a genuine outsourced service?

Defined deliverables with acceptance criteria, a supplier that chooses and manages its own team, responsibility for defects, pricing by scope rather than by named person, and working practices that match the contract.

Does a dedicated monthly team count as labour supply?

Not automatically. A dedicated team the supplier manages can be a service; a named person your managers direct day to day looks like labour supply. Your adviser should look at the contract and the practice together.

Does the size of my UK company matter?

For UK contractors, yes: medium and large private sector clients decide status and issue a status determination statement, while small clients leave it to the worker's intermediary. For non-UK workers working abroad, the residence point in ESM10025 usually comes first.

Can RAITHub advise on my IR35 position?

No. RAITHub gives no tax or legal advice. We provide a written scope and answer your adviser's questions about how the engagement works.