This article is general guidance, not tax advice. Always validate your specific engagement structure with a qualified UK tax adviser.
IR35 is the most misunderstood blocker in UK-India hiring. Many UK CTOs assume any foreign contractor automatically triggers IR35 risk; others assume "they're in India, so IR35 doesn't apply at all". Both are wrong. The legislation is nuanced, and the correct contract structure typically places India-based engineers cleanly outside IR35 — but only if you get a handful of things right in the SoW.
TL;DR: Engaging a non-UK-resident company (like Krapton Technologies Pvt Ltd) via a B2B Services Agreement where you purchase a deliverable or a dedicated-resource month — not the labour of a named individual — is generally outside the scope of IR35, because the chain lacks a UK personal service company and lacks UK tax residency in the worker.
Quick recap: what IR35 is actually trying to catch
IR35 (the off-payroll working rules) was designed to prevent "disguised employment" — where a UK individual operates through a limited company to reduce their tax bill while performing what is effectively an employee role. Since April 2021, medium and large UK businesses are responsible for determining the IR35 status of their off-payroll workers.
The four determinants HMRC cares about are: right of substitution, mutuality of obligation, control, and in-business tests. These apply to the worker and the contract chain — and the chain typically breaks down for a legitimate India B2B engagement.
Why India-based B2B engagements usually sit outside IR35
- No UK personal service company in the chain — you are contracting with Krapton Technologies Pvt Ltd, an Indian company, not a UK Ltd.
- The worker is not UK-tax-resident — they are employed by the Indian company under Indian law and paid in INR.
- Right of substitution is genuine — the partner can swap engineers under the SoW (subject to approval).
- Mutuality of obligation is engagement-level, not worker-level — the SoW is between companies, not between you and a named individual.
This does not mean IR35 can be ignored. It means that, correctly structured, the engagement typically falls outside the legislation because the underlying assumptions do not apply.
The SoW language that keeps your tax counsel comfortable
- Contract subject: "Krapton Technologies Pvt Ltd shall provide the Services described in Schedule A", not "the Client shall engage Mr X for Y hours". The subject is the company, not a person.
- Right of substitution: "The Supplier may substitute personnel at its discretion, subject to prior written notice to the Client." Keeps the MoO test honest.
- Deliverable-based schedules. Where possible, tie payment to milestones or to a monthly dedicated-resource allocation, not to timesheets of a named individual.
- No control language. Avoid "the worker shall follow the Client's instructions as to hours, holidays, or working location". Instead: "the Supplier shall determine how to deliver the agreed outputs".
- Jurisdiction clause. English or Indian law both work; name one and keep dispute resolution consistent.
Where CTOs get this wrong
- Naming a specific individual in the SoW as irreplaceable. Destroys right of substitution.
- Running timesheet approvals like an internal employee. Hourly tracking is fine; daily micro-management is not.
- Issuing a laptop and email address. These are sometimes necessary for security; if you do it, document the reason and compensate with stronger substitution language.
- Paying via personal-style invoices. Every invoice should be from the partner entity, on its headed paper, with its GST number and company details.
Edge cases where IR35 can still bite
- If the India-based engineer becomes UK-tax-resident (e.g., moves to the UK for 6+ months), the analysis changes.
- If the engagement is effectively full-time, on-site UK, for 12+ months with no substitution ever happening in practice, HMRC may look at substance over form.
- If the SoW is drafted sloppily — naming an individual, requiring UK hours, prohibiting substitution — you are re-introducing IR35 indicators.
Practical checklist for your legal review
- Contract is company-to-company, not personal.
- Right of substitution is genuine in the text and in practice.
- Deliverables or dedicated-month allocation, not named-individual timesheets.
- Partner is a recognisable legal entity with GST, Indian company number, and audited accounts.
- SCCs / DPA in place for personal-data processing.
- Your tax counsel has reviewed the SoW template and is on record confirming outside-IR35 position.
FAQ
Does IR35 apply to Indian developers working for UK companies?
Typically no, when engagement is via a B2B Services Agreement with an Indian company and the engineer is not UK-tax-resident. Always validate with your tax counsel.
Can I still hire a named individual from India for my team?
Yes, as long as the contract is with the Indian partner entity and the SoW preserves right of substitution. Many clients name a preferred engineer informally while the SoW remains entity-level.
What about national insurance on payments to the Indian partner?
NI does not apply to payments to an Indian B2B supplier because there is no UK employment relationship. VAT treatment of services imported from India is a separate question your accountant can handle.
Next step
If you'd like to see the SoW template we use with our UK clients and have your tax counsel review it, book a free consultation. You can also explore our developer directory or hire a React developer under the same outside-IR35 structure.