Usually not, if the engineer isn't UK-resident and does all the work outside the UK. HMRC's guidance says the off-payroll working rules only apply where a UK liability to tax or National Insurance contributions (NICs) arises, and a non-resident working abroad is unlikely to have one. Two facts flip that answer: the engineer does some of the work in the UK, or the engineer is UK-resident. It's one of the compliance questions in our EU engineering hiring compliance: contracts, IP and GDPR guides.
Short answer: when the off-payroll rules apply to an EU-based engineer
HMRC's manual frames the test around residence and where the work is done, not nationality.
| Scenario | Do the off-payroll rules apply? | Where it comes from |
|---|---|---|
| EU-resident engineer, all work done in the EU | Unlikely, because no UK tax or NICs liability is expected | ESM10025 |
| Non-UK-resident engineer, some duties done in the UK | Normally yes for the UK duties, subject to residence and treaty position, so take advice | ESM10025, EIM77020 |
| UK-resident engineer, working from the EU | The rules can apply wherever the work is done | ESM10025 |
| Your company is small | The rules can still apply, but the engineer's intermediary decides | ESM10011 |
This is general information, not tax or legal advice. Your contract structure decides a lot here, so check it with an adviser before relying on any row above.
What the rules say about workers outside the UK
Does IR35 apply to overseas contractors in general? HMRC's manual says the off-payroll working rules can only apply where a UK liability to tax and/or NICs arises in the same manner as it applies to regular employees, and that a client doesn't need to consider the rules where no such liability exists.
For a non-UK resident contractor, the manual's international tax page is more specific. If the worker isn't chargeable to UK tax or NICs, the rules won't apply, and a worker who isn't UK-resident and performs work outside the UK is "unlikely" to fall within the charge. Note the hedge. HMRC says unlikely, not never, and that's the word you should carry into your own analysis.
Residence gets its own line in the manual's international examples: an engagement can only fall within the rules if the worker has a UK liability to tax or NICs, "so residency of the worker must be considered". That's why many buyers ask for written confirmation of tax residence.
Who decides status: you or the engineer's intermediary?
Under HMRC's understanding off-payroll working guidance, in most cases the client is responsible for determining the worker's employment status. The exception is a small client outside the public sector, where the worker's intermediary (typically their personal service company, or PSC) decides whether the rules apply.
When the client decides, it issues a status determination statement (SDS) with its reasons. The manual on the client's duties adds two consequences. Where the client is also the deemed employer, it's responsible for PAYE, deducting tax and NICs and paying them to HMRC. And HMRC may treat a failure to pass the SDS to the worker and any third party as evidence of a lack of reasonable care when it calculates penalties.
For an EU engineer with no UK liability, none of that is triggered. It matters once either flip condition appears.
The client "UK connection" test
There's a separate test that looks at the client, not the worker. A client is "wholly outside the UK" only if, immediately before the tax year begins, it isn't UK resident and has no permanent establishment in the UK, and wholly overseas clients don't need to consider the rules.
A UK company is UK resident, so it has a UK connection and can't use this. The test only helps where the contracting client entity is itself not UK resident and has no permanent establishment in the UK immediately before the tax year. A UK subsidiary of a non-UK group is UK resident, so it can't use it either. Your tax team should confirm which entity is the client.
Small-company exemption and the April 2025 thresholds
If you're a small company outside the public sector, the duty to decide status sits with the engineer's intermediary. Whether you count as small depends on the thresholds. For financial years beginning on or after 6 April 2025, the manual's page on the medium and large thresholds sets them at turnover of more than £15 million, a balance sheet total of more than £7.5 million and more than 50 employees. A company that exceeds two of the three counts as medium or large.
Size status generally has to hold for two consecutive financial years, and a transitional rule lets the new thresholds be applied to a previous financial year. The older £10.2 million and £5.1 million figures were the thresholds before 6 April 2025. Your accountant can confirm which years count for you.
Hiring through a nearshore vendor
Does a vendor in the middle change the answer? HMRC's manual says the intermediary's location doesn't decide whether the rules apply. The worker's residence and where the work is done do.
Whether there's an "intermediary" at all depends on how the engineer is engaged: through the vendor's own company, or through a personal company of their own. The manual excerpts we have don't settle that, so it's a question for your adviser and your contract.
The same holds for offshore developers generally: the vendor's location doesn't decide anything. The engineer's residence, the place the work is done, and the shape of the chain do.
What changes if the engineer works from the UK
A visit or relocation is the most common way the answer flips. The manual's international page says a worker carrying on duties in the UK for an end client will normally fall within scope of the UK charge to tax and be within the off-payroll working rules. For non-residents, the employment income manual says employees who aren't resident in the UK aren't chargeable to UK tax on general earnings for overseas duties. So UK duties normally bring the rules in, subject to residence and treaty position, which is adviser territory.
Immigration is a separate matter. The government's Standard Visitor guidance says you'll need to apply for a work visa if you want to do any other paid or unpaid work in the UK, beyond the business activities it lists. Check what any planned UK visit involves before it's booked.
How to check whether IR35 applies to your EU engineer
This is general information, not tax or legal advice.
1. Confirm the engineer's tax residence
Many buyers ask for written, dated confirmation from the engineer. The manual's line that residency must be considered makes residence a natural starting fact.
2. Confirm where the duties are performed
Consider asking whether any work will be done in the UK, and how UK visits would be reported to you. Work done in the UK is the second flip condition.
3. Confirm your company size
Compare your accounts for the relevant financial years with the turnover, balance sheet and headcount thresholds above. That points to whether you or the engineer's intermediary would decide status if a UK liability existed.
4. Map the contract chain
It helps to write down who pays whom, and whether any UK entity, agency or intermediary sits in it. If the chain is unclear, you can't confirm the other facts with any confidence.
5. Record the decision and the reasoning
It's worth keeping the residence confirmation, any place-of-work confirmation and your reasoning on file. If there's any UK work or UK residence, take advice and consider whether an SDS is needed.
Questions to ask a nearshore vendor before signing
Keep these neutral, and get the answers in writing.
- Where is the engineer tax-resident, and will you confirm it in writing?
- Will the engineer do any work in the UK, and what's your process if a UK visit is proposed?
- Which entity employs or contracts the engineer, and is it the same entity that invoices me?
- Is any UK company, agency or intermediary in the chain between me and the engineer?
- Who's treated as the fee-payer, and who issues or receives any SDS?
- What evidence do you retain about residence and place of work, and will you share it?
- Who advises you on UK status, and would you consider an indemnity if your position turns out to be wrong?
Data questions belong in a different contract. When a UK company needs one is covered in our guide on when a UK company needs a data transfer agreement for an EU hire, and the contract clauses that sit alongside status cover governing law and the data-processing clause. Worker classification for platforms is a separate EU regime, set out in EU rules on worker classification for platforms, and has no bearing on the UK rules here.
FAQ
Does IR35 apply to EU contractors working from the EU?
Unlikely, in HMRC's own wording. A worker who isn't UK-resident and performs work outside the UK is unlikely to fall within the charge to UK tax or NICs, and the off-payroll rules don't apply to a worker who isn't chargeable. It's worth confirming residence and place of work in writing rather than assuming them.
Does IR35 apply if my company is small?
The rules still exist, but the decision moves. For a small non-public-sector client, the worker's intermediary decides whether the rules apply. For financial years beginning on or after 6 April 2025, the thresholds are turnover over £15 million, balance sheet over £7.5 million and more than 50 employees, and a company that exceeds two of the three is medium or large. Size status generally has to hold for two consecutive financial years, and a transitional rule lets the new thresholds be applied to a previous financial year.
Does it matter that the engineer is an EU national?
HMRC's manual frames the test around residence and where the work is done, not nationality. Its international examples say the residency of the worker must be considered, and its international tax page turns on the place where the duties are performed.
Do I need an SDS for an offshore developer?
If no UK liability arises, the rules don't apply and there's nothing to determine. If one might, and you're not a small client, the client issues the SDS. HMRC may treat a failure to pass it on as evidence of a lack of reasonable care when calculating penalties.
Does a vendor in the middle change it?
Not by itself. HMRC's manual says the intermediary's location doesn't decide whether the rules apply; the worker's residence and where the work is done do. How your chain is structured is a question for an adviser.
Does IR35 apply to EU contractors visiting the UK?
Normally yes for the UK duties, subject to residence and treaty position, so take advice on tax, and on immigration too. The government's Standard Visitor page says paid or unpaid work beyond the listed business activities needs a work visa.