Key Summary
- IR35 determines whether UK contractors should be treated as employees for tax purposes and directly impacts cost, compliance, and operational structure.
- Offshore contractors generally fall outside IR35 when no UK intermediary such as a UK personal service company is involved.
- Clear role definitions, structured engagements, and compliant service models reduce the risk of accidental IR35 exposure.
- Leadership teams must understand how control, substitution, and mutuality of obligation shape IR35 assessments and determine risk.
- Connext enables UK organisations to scale securely by providing fully managed offshore teams that sit entirely outside IR35.
Why IR35 Matters for UK Companies in 2026
IR35 continues to shape how UK organisations structure contingent work, hire global talent, and manage project based engagements. CTOs, CFOs, operations leaders, and founders are increasingly aware that contractor misclassification carries real financial and legal consequences, including unexpected tax liabilities, penalties, and operational disruption.
As hiring pressures increase and more organisations explore offshore talent to counter domestic shortages, IR35 becomes a critical filter for assessing risk. The question leadership teams now ask is simple:
Can we scale with offshore talent while staying safely outside IR35 requirements?
The answer: Yes if the engagement model is structured correctly.
Connext explored similar compliance themes in the article Remote Work Compliance in Remote Staffing, which highlights how global employment rules influence offshore operations.
These insights closely mirror the considerations UK companies face under IR35.
How IR35 Applies to Offshore Contractors
IR35 applies when a contractor provides services to a UK client through a UK based intermediary, typically a personal service company (PSC).
If the individual is engaged outside the UK, and no UK intermediary exists, IR35 generally does not apply.
This distinction has led many UK organisations to revisit their contractor arrangements especially for engineering, QA, customer support, data operations, and finance functions that can be delivered remotely.
However, being “offshore” does not automatically eliminate risk.
IR35 exposure can still occur if the working arrangement resembles an employee relationship.
Where IR35 Risk Shows Up (Even With Offshore Staff)
HMRC evaluates engagements based on the reality of the working relationship, not the contract alone.
Leadership teams must understand the three core IR35 tests.
1. Control
If a UK organisation dictates hours, granular tasks, or day to day management, the engagement begins to resemble employment.
2. Substitution
If the contractor cannot provide a qualified substitute, HMRC may interpret this as personal service a key IR35 trigger.
3. Mutuality of Obligation (MOO)
If the company must provide work and the contractor must accept it, the arrangement edges toward employment status.
To stay safely outside IR35, offshore contractors must be engaged under terms reflecting true service based delivery, not employment like conditions.
Why Offshore Models Reduce IR35 Complexity
When structured correctly, offshore arrangements help UK organisations avoid IR35 because:
- The workers are employed outside the UK
- No UK intermediary or PSC is involved
- The offshore provider manages HR, payroll, and compliance in country
- Engagements are structured as service delivery, not UK employment
This model removes the administrative burden of contractor assessments, payroll validations, and IR35 reporting.
It also aligns with guidance highlighted in Connext’s blog Offshore Solutions for UK-Based Companies: Fully Integrated Teams Without the Risk especially around compliance clarity and reducing domestic hiring risks.
Security and Data Governance Still Matter
Even if IR35 does not apply, UK organisations must maintain strong data protection standards. This is especially important for:
- Financial services
- Regulated operations
- Technology teams
- Customer support
- Healthcare and insurance operations
Offshore teams must operate in environments that align with the UK’s compliance expectations.
Connext ensures this through:
- Secure, access controlled facilities
- Monitored networks
- Encrypted workstation environments
- Documented workflows
- Data handling SOPs
These controls demonstrate that IR35 exempt engagements can still meet UK level security requirements, a topic also addressed in Connext’s compliance related content library.
Why Connext Is the Right Fit for IR35 Sensitive Engagements
Connext’s model was built to eliminate IR35 exposure from the start.
How Connext Protects UK Clients
- We employ all staff outside the UK
- No UK intermediary or UK payroll structure is used
- Clients retain workflow ownership
- Connext manages recruitment, compliance, EOR structure, HR, and facilities
- Engagements are structured as managed offshore staffing, not UK employment
This gives UK organisations access to scalable capacity without the ambiguity of contractor assessments or IR35 complexity.
Connext’s model aligns with the same risk mitigation principles found in its broader compliance content, including remote work governance and cross border employment strategies.
Planning and Implementation
Most UK organisations follow a phased approach:
Step 1: Role Selection
Identify which positions can shift offshore without triggering control or obligation issues.
Step 2: Structured Deliverables
Define tasks, outcomes, and boundaries clearly to avoid resembling a UK employment relationship.
Step 3: Governance Layer
Ensure reporting lines, workflows, and performance structure place day to day supervision outside the scope of UK employment law.
Step 4: Scale Gradually
Pilot roles, validate alignment, then expand.
This protects operations and limits legal exposure.
This phased method mirrors the strategic planning approaches discussed in Connext’s scaling and compliance blogs, reinforcing consistency across the organisation.
Conclusion
IR35 continues to shape how UK organisations engage contractors and build flexible teams.
Offshore delivery presents a clear, compliant, and scalable way to expand capacity without triggering IR35 obligations, provided the structure avoids UK intermediaries and mirrors genuine service based engagements.
By partnering with a fully managed offshore provider like Connext, companies gain:
- IR35 safe employment structures
- Predictable costs
- Strong operational continuity
- Secure facilities and governance
- Rapid access to technical and operational talent
- A future ready compliance posture
As UK businesses navigate hiring freezes, budget pressure, and rising regulatory scrutiny, offshore staffing through Connext offers a low risk, high control alternative to UK contracting.
Frequently Asked Questions (FAQs)
Generally no, as long as there is no UK intermediary and the individuals are employed offshore.
Employee like conditions such as excessive control, no substitution rights, or mutual obligations.
Yes when structured through a compliant offshore provider with no UK link in the employment chain.
Connext employs talent offshore, manages HR and payroll locally, and eliminates UK intermediaries entirely.
Engineering, QA, data operations, customer support, finance support, and administrative functions.
