IR35 and Offshore Developers in India: Do Off-Payroll Rules Apply?
In most cases, the off-payroll working rules (commonly called IR35) do not apply when you engage developers who are tax-resident in India and perform all their work in India. IR35 is concerned with workers who would, but for an intermediary, be treated as employees for UK tax purposes. Where the individual is employed and works wholly overseas through a managed B2B service, there is generally no UK PAYE or National Insurance liability for the UK client to operate, and the off-payroll machinery does not bite in the way it does for UK-based contractors.
That said, "usually not" is not "never," and the analysis depends on facts. Below we explain why offshore engagements typically fall outside IR35, where the genuine nuance lies, and how a managed service like OSCABE is structured so the UK or EU client is not the legal employer abroad.
What are the off-payroll working rules (IR35)?
IR35 targets "disguised employment." It applies where a worker provides services to a client through an intermediary (often the worker's own personal service company), and the relationship would be one of employment if you stripped the intermediary away. When the rules apply, employment taxes (PAYE and Class 1 National Insurance) must be accounted for on the payment.
Since April 2021, for medium and large clients in the private sector, the responsibility for assessing status and, where relevant, deducting tax shifted to the end client and the fee-payer in the supply chain. You can read HMRC's overview in Understanding off-payroll working (IR35) and the checker guidance at Check if IR35 applies.
The key point for offshore hiring: IR35 is a UK tax rule about UK employment taxes. Its reach is shaped by where the worker is resident and where the duties are performed.
Why IR35 usually does not apply to developers working in India
Two factors typically take a genuine offshore engagement outside the practical scope of UK off-payroll deductions:
- Tax residence. A developer who lives in India and is tax-resident there is generally taxed in India on employment income for duties performed in India. UK PAYE is designed to collect UK income tax; where there is no UK income tax charge on the earnings, there is nothing for the UK client to deduct.
- Where the duties are performed. UK employment tax broadly follows the place where the work is physically carried out. Duties performed wholly in India, by someone who never works in the UK, are not UK duties for these purposes.
HMRC's own off-payroll guidance recognises that the location and residence of the parties affect how (and whether) the rules apply in practice. The off-payroll regime assumes there is a UK income tax and NIC charge to capture; for a worker employed and resident abroad, performing duties abroad, that charge is generally absent.
There is a further structural point. Under a managed B2B service, you are not engaging an individual contractor at all. You are buying a service from a provider that employs the professional. The individual's employer is the offshore entity, not you. That changes the question from "is this person a disguised employee of mine?" to "am I buying a genuine outsourced service?" and the latter sits outside IR35's frame.
IR35 scenarios compared
| Scenario | Worker residence and work location | Engagement type | IR35 / off-payroll position |
|---|---|---|---|
| UK contractor via own limited company | UK resident, works in UK | Personal service company | In scope. Client must assess status; fee-payer may deduct PAYE/NIC. |
| Indian developer, you contract the individual directly | India resident, works in India | Direct individual contract | Off-payroll deductions generally not triggered (no UK duties), but you carry permanent-establishment, employment-law and tax-residence risk in India. |
| Offshore developer via managed B2B service (e.g. OSCABE) | India or UAE resident, works there | You buy a managed service; provider employs the worker | Outside IR35 in substance. No UK PAYE/NIC for you to operate; provider is the employer abroad. |
| Offshore worker who spends material time working in the UK | Splits work between India and UK | Any | Caution. UK duties can create UK tax exposure. Take advice. |
The last row is the genuine nuance. If an offshore professional spends meaningful time physically working in the UK, UK income tax can attach to the UK workdays, and the simple "all overseas" analysis no longer holds. Short visits are usually manageable, but a pattern of UK working should be reviewed with an adviser.
How does a managed service keep you out of the IR35 question?
A managed B2B service is not staff augmentation where you simply rent an individual. The structure matters:
- The provider is the legal employer. The developer is employed by the provider's entity in India or the UAE. You never become the individual's employer.
- You contract for a service, not a person. Your agreement is a UK B2B services contract with the provider, with deliverables, service levels and a clear scope.
- No UK payroll for the individual. Because the worker is employed and taxed abroad, there is no UK PAYE/NIC obligation on you for that person.
This is exactly how OSCABE is built. UK and EU clients contract under one UK agreement; the professionals are employed by OSCABE's offshore entities and work from India or the UAE. The result is a genuine, fully-managed service rather than a disguised employment relationship, which is what keeps the IR35 question off the table. See how it works and our managed teams for the operating model.
It is worth contrasting the models you might consider, because they carry different risk. A quick comparison sits in our guide to EOR vs entity vs managed team for hiring abroad, and the broader legality question is covered in is it legal to hire developers in India from the UK.
What about permanent establishment and other risks?
IR35 is only one part of the picture. Even where off-payroll does not apply, contracting an individual directly overseas can expose you to:
- Permanent establishment (PE): the risk that your activity abroad creates a taxable presence for your company in that country.
- Local employment law: misclassification, termination rights and benefits under Indian or UAE law.
- Social security and local payroll: obligations owed in the worker's country.
A managed service is designed to absorb these, because the provider, not you, is the employer of record in-country. That is the practical reason UK firms choose a managed model over a direct hire: it addresses IR35, PE and local employment exposure in one structure. For the wider cost and trade-off view, see the true cost of an offshore development team in 2026.
Frequently asked questions
Do I need to run a CEST assessment for an offshore developer?
CEST (Check Employment Status for Tax) is built around UK employment status and UK tax. For a worker employed and resident abroad, performing duties wholly abroad through a managed service, there is generally no UK PAYE/NIC charge to assess, so CEST is not the operative test. If an offshore worker performs duties in the UK, take advice on the UK workdays. HMRC's guidance is at Check if IR35 applies.
Could IR35 ever apply to someone in India?
In practice it is unlikely where the person is employed and taxed in India and never works in the UK, because the rules are aimed at capturing UK employment taxes that simply are not in play. The position can change if the individual works in the UK or if the arrangement is, in substance, a direct personal-service relationship dressed up as a service.
Is a managed service "IR35-friendly"?
A genuine managed service moves you away from engaging an individual and towards buying an outsourced service from a provider that employs the worker. That structure sits outside the disguised-employment scenario IR35 addresses. The substance has to match the paperwork: real management, real deliverables, real employer responsibility resting with the provider.
What records should I keep?
Keep your B2B services agreement, evidence that the provider employs the individual abroad, and a note of where the work is performed. If any UK working occurs, document the days. Good records support the position that you bought a managed service rather than engaging a disguised employee.
General information, not legal advice
This article is general information about UK off-payroll working and offshore engagement, current as at the date of publication. It is not legal or tax advice and does not create a professional relationship. Tax positions turn on specific facts; please take advice from a qualified UK tax adviser (and local counsel where relevant) before acting. Primary sources are linked above, including HMRC at GOV.UK and UK legislation at legislation.gov.uk.
Ready to hire offshore developers without the IR35 headache?
OSCABE provides dedicated, fully-managed remote developers and teams from India and the UAE under one UK contract, so you get the talent without becoming the employer abroad. We handle the employment, payroll and compliance in-country, leaving you with a clean B2B service. Explore our managed teams and pricing, or contact us to talk through your specific setup.