IR35 Clarity

IR35 and Large Company Contracts: How Data Centre Consultants Can Work Outside IR35

Many contractors believe that IR35 does not apply when they work for a very large company, especially in the technology and data centre sector. They hear that firms like global cloud providers let individuals set up a limited company and work as “consultants” and they assume that this arrangement somehow switches IR35 off.

That assumption causes risk. IR35 still applies. However, the engagement can sit outside IR35 if the contract and the actual working practices show a genuine business-to-business relationship.

This article explains:

• How IR35 and the off-payroll working rules operate

• Who decides the IR35 status when you work for a large client

• The tests that push a role inside or outside IR35

• How a data centre consultant can work outside IR35 through a limited company, with a practical example

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1. IR35 and off-payroll working – the basics

IR35, also called the off-payroll working rules, exists to make sure that people who work like employees, but use a limited company or other intermediary, pay broadly the same Income Tax and National Insurance as employees. GOV.UK+1

In simple terms:

• You provide services to a client

• You do so through an intermediary (usually your own limited company, often called a personal service company or PSC)

• IR35 asks one question:
  If you worked directly for the client, without the company in the middle, would the law treat you as an employee for tax purposes?

If the answer is “yes”, the engagement sits inside IR35 and tax must follow employee-like rules.
If the answer is “no”, the engagement sits outside IR35 and you can draw income more flexibly through your company.

The rules apply on a contract-by-contract basis. You can have one engagement outside IR35 and another inside IR35 at the same time. GOV.UK

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2. Who decides IR35 status when you work for a large company?

Under the current regime, the answer depends on the size and type of the client.

2.1 Public sector and medium/large private sector clients

For:

• All public sector bodies, and

• Medium and large private sector or voluntary sector clients

the client must decide if the engagement falls inside or outside IR35. GOV.UK+1

In these cases the client must:

1. Assess employment status for tax for each engagement.

2. Issue a Status Determination Statement (SDS) to the worker and to the next party in the chain.

3. Take reasonable care when making that decision.

If the client decides that the role falls inside IR35, the fee-payer (often the agency or sometimes the client itself) must:

• Operate PAYE on the fees paid to your company

• Deduct employee National Insurance

• Pay employer National Insurance and Apprenticeship Levy where relevant GOV.UK+1

Large technology firms and global data centre operators generally fall into this medium/large private sector category. So IR35 definitely applies. However, they can still assess specific roles as outside IR35 where the facts support that outcome.

2.2 Small private sector clients

Where the client is a small private sector entity, responsibility moves back to your own limited company. GOV.UK+1

A company counts as small if it meets at least two of these conditions (using the current thresholds that feed into the off-payroll rules):

• Turnover does not exceed £15 million

• Balance sheet total does not exceed £7.5 million

• Average number of employees does not exceed 50 ICAEW+1

For data centre work with global providers such as Microsoft or other major cloud firms, the client clearly sits well above these thresholds, so the client must make the IR35 decision.

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3. Key tests that determine IR35 status

HMRC and the courts look at the actual working relationship, not just the written contract. Several tests matter most:

3.1 Control

This test asks: Who controls “how, when and where” you work?

An engagement tends to sit inside IR35 where:

• The client directs your day-to-day tasks

• You follow line-management style instructions

• The client can move you from task to task like a member of staff

An engagement tends to sit outside IR35 where:

• The contract sets clear deliverables or outcomes

• You decide how to achieve those outcomes

• You control your own working methods and can structure your time, within sensible project constraints

3.2 Substitution

This test asks: Can your company send someone else of equivalent skill to deliver the work?

For an outside IR35 engagement:

• The contract includes a genuine right of substitution for your company

• The client cannot reject a substitute without solid, objective reasons

• In stronger cases, your company has actually used a substitute in the past

If the client insists that only you personally can do the work, and refuses any substitute in practice, this points towards inside IR35.

3.3 Mutuality of obligation

This concept looks at:

• Whether the client must offer continuous work, and

• Whether you must accept it.

An employment-like relationship often includes:

• Ongoing, open-ended work

• An expectation of continuous assignments

• A pattern where the client keeps giving tasks and you keep accepting them

An outside IR35 relationship looks more like:

• Distinct projects or statements of work

• No guarantee of further work after the project ends

• Freedom for both sides to walk away when the contract finishes

3.4 Financial risk, equipment, and integration

Other important factors include:

• Financial risk: Do you correct your own mistakes in your own time? Do you agree to fixed-price elements or service-level commitments?

• Equipment: Do you use some of your own equipment and software, or does everything mirror an employee set-up? (Security requirements can limit this in data centres, but you still show business-like behaviour in other ways.)

• Integration: Do you look and behave like staff (same perks, same benefits, line management, performance reviews)? Or do you stay clearly separate as an external provider? GOV.UK+1

No single factor decides the status. IR35 decisions use the overall picture.

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4. How can a data centre consultant work outside IR35 for a large client?

You can work outside IR35 for a large technology company if:

• The contract reflects a genuine business-to-business relationship, and

• The day-to-day working practices match that contract.

Below is a structured example.

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5. Example: Data centre consultant working for a global cloud company

Assume you run AC Tech Consulting Ltd, and you work for GlobalCloud Europe Ltd, a large company that operates data centres in the UK and across Europe.

5.1 The engagement

Global Cloud needs support with:

• Migrating racks in a UK data centre

• Improving power and cooling efficiency

• Designing a new monitoring process

They decide not to hire an employee. Instead, they want a specialist consultant for a 9-month project.

The contract states that:

• AC Tech Consulting Ltd will deliver a list of defined outcomes, including a migration plan, implementation, and a post-project review

• Fees are set on a day-rate with capped total days, tied to milestones and acceptance of deliverables

• AC Tech Consulting Ltd can provide a suitably qualified substitute at any time, subject to security clearance and standard onboarding

• Global Cloud can reject a substitute only where the person clearly lacks the agreed skills or cannot pass required checks

5.2 Working practices

In practice:

• You agree project timelines, but you choose your own working methods

• You do not attend staff appraisals, internal HR meetings, or employee training

• You carry your own professional indemnity insurance and public liability cover

• You buy and maintain your own laptop, software licences and professional memberships (while still using client systems for security-sensitive work on site)

• You take on a second client for three days a month during the same period

• When an issue arises from your configuration work, you fix it within your own time without extra charge, as the contract treats it as part of delivering a working solution

Global Cloud:

• Does not guarantee further work after the 9-month project

• Does not place you on the internal on-call rota used for employees

• Does not give you staff benefits such as bonuses, paid holiday, or sick pay

5.3 Status determination

Global Cloud uses the Check Employment Status for Tax (CEST) tool and/or professional advice to test the arrangement. GOV.UK+2GOV.UK+2

The status review notes that:

• Control sits mainly with AC Tech Consulting Ltd over how the services are delivered

• There is a real and workable right of substitution

• The project has a clear end point and no ongoing obligation to provide or accept further work

• AC Tech Consulting Ltd carries meaningful financial risk

GlobalCloud issues an SDS stating that the role sits outside IR35, and explains its reasons.

Because the client has taken reasonable care and the working practices support the decision, this engagement can sit outside IR35 even though GlobalCloud is a very large company and the work takes place in its data centres.

IR35 has not “switched off”. The client has simply assessed the engagement and reached a legitimate outside-IR35 conclusion.

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6. When a similar role would fall inside IR35

Now compare that to a different scenario with very similar technical work.

Global Cloud hires “Consultant B” through another limited company:

• The contract describes a “long-term assignment” with no clear end date

• The consultant receives tasks from a line manager in the same way as staff

• The consultant must work 9am to 5pm on site, Monday to Friday

• The contract prohibits substitution in practice, even if it mentions it in theory

• The consultant joins the on-call rota, attends staff meetings, and appears on internal organisation charts

• The consultant never works for any other client and relies on this one role for income

In this case:

• Control rests firmly with Global Cloud

• There is no genuine right of substitution

• There is a continuous pattern of work

• The consultant looks integrated into the staff structure

A careful review would likely place this engagement inside IR35. The fee-payer would then need to operate PAYE and National Insurance on the payments to the consultant’s company.

The fact that the company is large and the work takes place in a data centre does not protect the arrangement. The working pattern makes the role look like employment.

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7. Common myths about IR35 and large clients

Several myths circulate in the contractor market, especially in IT and data centre work:

1. “IR35 does not apply if the client is very large.”
   IR35 still applies. Large clients carry more responsibility, not less, because they must make formal status determinations. GOV.UK+1

2. “If the client lets you use a limited company, you must be outside IR35.”
   The use of a company does not decide status. HMRC and the courts look at the true working relationship.

3. “A high day rate always means outside IR35.”
   The rate level does not control the analysis. A well-paid role can still sit inside IR35 if you work like an employee.

4. “Remote work automatically means outside IR35.”
   Remote work can still involve strong day-to-day control by the client. The tests still focus on control, substitution, mutuality and integration.

5. “If you pass one client’s IR35 test, you are safe for all roles.”
   Each contract and each set of working practices needs its own assessment.

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8. Practical steps for contractors working with large companies

If you plan to work as a data centre consultant, or similar technical role, through your own limited company for a large organisation, you can take several practical steps.

8.1 Before you sign the contract

• Ask for the SDS in writing for your specific role.

• Review the contract with a focus on:

  • Right of substitution

  • Level of control over how you work

  • Project-based deliverables vs open-ended duties

• Remove wording that mirrors employment, such as:

  • “Line manager”

  • “Core hours of employment”

  • “Performance review”

• Make sure the contract recognises that your company provides services, not “you as an individual employee”.

8.2 During the engagement

• Work in a way that matches the contract:

  • Take responsibility for technical decisions within your remit

  • Keep a clear boundary between your role and employee functions

• Keep records:

  • Copies of SDSs

  • E-mails that show project-style management rather than day-to-day direction

  • Evidence of any other clients that you work with at the same time

• Avoid behaviours that look like employment:

  • Do not join staff benefits schemes

  • Do not ask for “holiday approval”; instead, notify the client of planned absence in line with the contract

8.3 Using CEST and professional advice

The client can use HMRC’s Check Employment Status for Tax (CEST) tool to support its status decision. Contractors can also use the tool for their own reference. HMRC states that it will stand by the outcome where users enter accurate information and follow guidance. GOV.UK+1

However, CEST does not replace detailed legal analysis. Many large clients now combine:

• Internal HR and tax teams

• CEST or other status tools

• Independent professional advice

This approach creates a robust SDS and reduces risk for everyone involved.

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9. Future changes to size thresholds – why they matter more to clients than to you

From April 2025, the financial thresholds for small companies increased, which means some clients will gradually move from medium/large into small for off-payroll purposes. bauerandcottrell.co.uk+2ICAEW+2

When a client becomes “small” for these rules:

• The responsibility to decide IR35 status shifts back to your limited company

• The old, pre-2021 style IR35 regime applies for that engagement

For global data centre operators and large technology companies, these threshold changes will not remove them from the off-payroll regime; they remain clearly above the limits. The main impact will fall on mid-sized businesses that sit near the boundary.

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10. Conclusion

IR35 does not disappear when you contract with a large company on data centre or technology projects. The rules apply in full. The difference lies in who makes the status decision and how the engagement is structured.

For public bodies and medium/large private sector clients, the client must:

• Review each engagement

• Issue a Status Determination Statement

• Deduct tax through PAYE where an engagement falls inside IR35

However, if you design the role as a genuine business-to-business engagement, maintain control over how you deliver the service, keep a real right of substitution, accept business-like risk, and avoid employee-style integration, a data centre consulting role can still sit outside IR35 even with the largest global firms.

The key point is this:

The law does not look at the logo on the building. It looks at how you actually work.

If you contract for large organisations through your own company, take time to review both the contract and the working practices. Combine careful drafting with disciplined behaviour in day-to-day work, and you can support a strong and defensible outside-IR35 position while still serving major data centre and technology clients.

📞 Written by etaxfiling.co.uk

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