How SKUNKWORK™ Helps Firms Keep IR35 and Compliance Risk on a Short Leash

UK off-payroll working rules (IR35) are designed to stop “disguised employment” – situations where a worker operates via their own company but, in practice, behaves like an employee. HMRC’s core guidance explains that if a worker provides services to a client through an intermediary (like a personal service company) and would be an employee if engaged directly, the off-payroll rules may apply, requiring PAYE and NICs to be operated. Medium and large private-sector clients must assess each contractor’s status and issue a Status Determination Statement (SDS), and can be liable for underpaid tax if they get it wrong.

However, HMRC makes an important distinction between hiring individual contractors and buying contracted-out services. In its guidance for clients, HMRC states that when an organisation receives “contracted out services from a third party, like an outsourcing company”, the client does not normally apply the off-payroll working rules; in that case, the organisation supplying the services is responsible for any IR35 considerations for its own workers. In other words, if you contract with a company that delivers a packaged, outcomes-based service (for example, managed IT or managed web ops), you are buying a business-to-business service – you are not directly engaging their staff as contractors.

That’s where a model like SKUNKWORK™ sits. From the client’s perspective, you are engaging a UK company to provide clearly defined digital operations services (e.g. website maintenance, security, creative work, SEO and AI integrations) under fixed-fee Plans and protocol-based KITs. You are not hiring Anthony or a named developer as a quasi-employee; you are purchasing a contracted-out managed service with its own processes, tools and internal team. Structurally, that’s much closer to a managed service provider (MSP) than a personal service company contractor, which is exactly the category HMRC describes as outside the scope of client-side off-payroll rules in its “contracted-out services” section.

For professional firms like accountants and brokers, this distinction matters. IR35 guides aimed at engagers stress that larger businesses must carefully review every PSC-type engagement, document status decisions, and may face back-tax and penalties if HMRC later decides those contractors were effectively employees. By contrast, buying a managed digital operations service from a specialist provider typically sits alongside other B2B relationships (e.g. cloud hosting, payroll bureaus, outsourced IT support), which are treated as standard trading contracts rather than off-payroll worker arrangements.

Of course, IR35 status always depends on the actual facts: how work is delivered, who controls it, and whether roles are genuinely contracted out rather than just being “re-labelled employees”. HMRC explicitly warns organisations not to simply rebrand in-house roles as outsourced services to evade the rules. But if the reality matches the SKUNKWORK model – a separate company delivering defined outputs and SLAs for many clients at once, using its own staff and systems – then for the SME client the IR35 responsibility for those workers sits with the provider, not with the SME.

To explore this further, see HMRC’s official pages on understanding off-payroll working (IR35), off-payroll working for clients, and practitioner guides such as “IR35 Guide – Engagers” or “Off payroll working rules (IR35)”. They all reinforce the same high-level principle: engaging a genuine, contracted-out service provider is materially different, from an IR35 perspective, to hiring individual contractors who function like employees.

(Standard disclaimer: this is general information, not personalised tax or legal advice. Firms should always discuss their specific circumstances with their own professional adviser.)

However, HMRC makes an important distinction between hiring individual contractors and buying contracted-out services. In its guidance for clients, HMRC states that when an organisation receives “contracted out services from a third party, like an outsourcing company”, the client does not normally apply the off-payroll working rules; in that case, the organisation supplying the services is responsible for any IR35 considerations for its own workers. In other words, if you contract with a company that delivers a packaged, outcomes-based service (for example, managed IT or managed web ops), you are buying a business-to-business service – you are not directly engaging their staff as contractors.

That’s where a model like SKUNKWORK™ sits. From the client’s perspective, you are engaging a UK company to provide clearly defined digital operations services (e.g. website maintenance, security, creative work, SEO and AI integrations) under fixed-fee Plans and protocol-based KITs. You are not hiring Anthony or a named developer as a quasi-employee; you are purchasing a contracted-out managed service with its own processes, tools and internal team. Structurally, that’s much closer to a managed service provider (MSP) than a personal service company contractor, which is exactly the category HMRC describes as outside the scope of client-side off-payroll rules in its “contracted-out services” section.

For professional firms like accountants and brokers, this distinction matters. IR35 guides aimed at engagers stress that larger businesses must carefully review every PSC-type engagement, document status decisions, and may face back-tax and penalties if HMRC later decides those contractors were effectively employees. By contrast, buying a managed digital operations service from a specialist provider typically sits alongside other B2B relationships (e.g. cloud hosting, payroll bureaus, outsourced IT support), which are treated as standard trading contracts rather than off-payroll worker arrangements.

Of course, IR35 status always depends on the actual facts: how work is delivered, who controls it, and whether roles are genuinely contracted out rather than just being “re-labelled employees”. HMRC explicitly warns organisations not to simply rebrand in-house roles as outsourced services to evade the rules. But if the reality matches the SKUNKWORK model – a separate company delivering defined outputs and SLAs for many clients at once, using its own staff and systems – then for the SME client the IR35 responsibility for those workers sits with the provider, not with the SME.

To explore this further, see HMRC’s official pages on understanding off-payroll working (IR35), off-payroll working for clients, and practitioner guides such as “IR35 Guide – Engagers” or “Off payroll working rules (IR35)”. They all reinforce the same high-level principle: engaging a genuine, contracted-out service provider is materially different, from an IR35 perspective, to hiring individual contractors who function like employees.

(Standard disclaimer: this is general information, not personalised tax or legal advice. Firms should always discuss their specific circumstances with their own professional adviser.)

100% of Skunkwork Services Are Tax-Deductable

For UK SMEs, one of the big attractions of subscription-based digital services is that most of the spend is treated as tax-deductible business expenditure, reducing taxable profit. The key principle in UK tax law is that expenses must be incurred “wholly and exclusively” for the purposes of the trade to be allowable. If SKUNKWORK is used solely for business website management, security, design and related digital ops, the fees will usually meet that test.

HMRC’s guidance on expenses for the self-employed explicitly lists “website costs” under marketing expenses, alongside advertising, mailshots and free samples. For companies, general guides on allowable expenses from insurers and accountants list advertising, marketing and website development/maintenance as typical deductible costs, so long as they are purely for business and not personal. The Association of Taxation Technicians’ note on “Tax treatment of software and website costs” explains that revenue expenditure (ongoing support, maintenance, hosting, minor enhancements) is generally fully deductible when incurred, while capital expenditure (large new builds) may instead be relieved over time through amortisation or capital allowances.

In practical terms, most SKUNKWORK-style fees – ongoing website maintenance, updates, security monitoring, optimisation, content changes, SEO work and so on – are likely to fall into revenue expenditure for both unincorporated businesses and companies, because they relate to maintaining and operating an existing site rather than acquiring a new capital asset. Revenue expenses that satisfy the “wholly and exclusively” test are normally deducted in full from trading profits for the period. So if a limited company spends £10,000 on genuinely business-only SKUNKWORK services in a year, that £10,000 usually reduces its taxable profit by the same amount. At a 25% corporation tax rate, that would save £2,500 in tax; the rest of the fee remains a real business cost, just like rent or staff wages.

For self-employed SMEs, the mechanism is similar: guidance on allowable business expenses from the Low Incomes Tax Reform Group and HMRC’s own “Expenses if you’re self-employed” page explains that qualifying website, office and marketing costs are deducted when calculating business profit for Self Assessment. Commercial guides like AXA’s “Allowable expenses for limited companies” and Hiscox’s “Allowable expenses for tax returns” give accessible summaries and examples of how these principles work day-to-day.

A few practical points SMEs should keep in mind:

• Keep invoices and contracts that clearly describe the services as business-related website, IT, security or marketing work. Good documentation supports the “wholly and exclusively” test if HMRC ever asks.
  
• Separate business and personal use. If any part of the service is for personal purposes (e.g. running a personal blog through the same account), you may need to restrict the deduction proportionately.
  
• Watch large one-off build projects. Where a SKUNKWORK engagement creates a brand-new website or significant new functionality, your accountant may treat some of that spend as capital. Relief is still available, but via different rules (capital allowances/intangibles) rather than as a straight revenue deduction.
  

You can explore the official rules in more depth on HMRC’s pages for self-employed expenses, and via technical summaries like the ATT’s software/website guidance and LITRG’s overview of business expenses allowable for tax. The punchline for most UK SMEs is straightforward: if SKUNKWORK is used purely for your business website and digital operations, the fees are normally 100% deductible against your business profits, helping to reduce your overall tax bill.

(Again, this is general information only. Businesses should confirm the treatment of their own SKUNKWORK invoices with their accountant or tax adviser.)

SKUNKWORK Fits The Brief Perfectly When It Comes To Website Management

Accountants and financial brokers sit under some of the strictest data protection and confidentiality obligations in the SME world. UK GDPR requires organisations to process personal data securely using “appropriate technical and organisational measures”, and the Information Commissioner’s Office (ICO) highlights security as a core principle: firms must consider risk analysis, policies and robust technical controls. Sector-specific guidance from bodies like ICAEW, ACCA and software providers emphasises that accountancy practices, in particular, need strong IT and web security given the volume of sensitive financial data they hold.

For many small and mid-sized firms, keeping a fully up-to-date, secure website in-house is difficult. Guides on IT challenges for UK SMEs stress recurring themes: lack of specialist security skills, limited internal IT capacity, and the distraction of trying to run infrastructure instead of focusing on core work. At the same time, websites are now tightly linked to compliance and reputation: a compromised or out-of-date site can risk GDPR breaches, client data exposure, FCA scrutiny for regulated firms, and serious reputational damage.

Outsourcing web maintenance and security is a way of closing that skills and risk gap. Research on UK managed service providers commissioned by government describes MSPs as entities that deliver ongoing, contracted-out services like monitoring, patching and security for multiple clients – exactly the type of provider that can keep SME websites hardened and up-to-date without those SMEs having to build internal teams. Meanwhile, industry surveys on outsourcing show a growing share of UK organisations either maintaining or increasing spending on external IT and security partners, with around one-third planning to spend more to gain specialist expertise and resilience.

For accountants, GDPR-specific resources repeatedly recommend partnering with IT and web specialists who understand encryption, secure hosting, access controls, backups and incident response. For example, the ICO’s guide to data security and ACCA’s “What is GDPR?” overview both stress that security is an ongoing process, not a one-off task. Practical guides like Sage’s “A quick-start GDPR guide for accountants” and recent blog posts on “GDPR compliance for accountancy firms” recommend budgeting for professional IT/web support as part of an overall compliance plan.

From an economic standpoint, outsourcing website maintenance and security lets accountancy and brokerage firms convert fixed staffing costs into flexible service fees. As with general SME IT outsourcing, they pay a predictable monthly amount for a provider to handle updates, patches, backups, uptime monitoring, incident response and sometimes content/SEO – instead of hiring permanent staff with salaries, benefits and ongoing training requirements. Outsourcing analyses such as “Why UK SMEs should consider outsourcing IT” and “Why small businesses in the UK are outsourcing managed IT support services” highlight cost savings, stronger cyber security and the ability to redirect partners’ time to client work as key benefits.

For regulated firms, there is also a governance and IR35 benefit. Instead of hiring individuals through personal service companies and grappling with off-payroll working assessments, many practices prefer to contract with a specialist company that provides a clearly defined, contracted-out service. HMRC’s guidance on off-payroll working for clients explains that clients generally do not apply the IR35 rules to genuine contracted-out services delivered by third-party providers; responsibility for any IR35 issues lies with the supplier. For partners already juggling AML, client money and audit regulations, keeping web and IT roles firmly in the “external supplier” bucket simplifies compliance.

Put together, these factors explain why so many UK accountants and brokers now treat website maintenance and security like they treat cloud software or payroll: a specialist, outsourced function, provided by a dedicated firm on a predictable monthly fee – rather than a fragile mix of internal dabbling and ad-hoc freelancers. It gives them better security, clearer compliance lines and more time to focus on what actually generates fees: serving clients.