Back to BlogIR35 in 2026: What the New Small Company Thresholds Means for Your Contractor Workforce
From 6 April 2026, the rules around which businesses are required to operate IR35 changed materially. HMRC estimates that approximately 14,000 companies may be reclassified as small under new statutory thresholds – and for those businesses, the responsibility for IR35 status determination has shifted back to contractors.
If your organisation engages contractors through personal service companies (PSCs), this change almost certainly affects how you manage your contingent workforce. This guide explains what changed, how to check whether it applies to you, and what your next steps should be.
What changed for IR35 on 6 April 2026?
The off-payroll working rules (IR35) have always included an exemption for small businesses. Small companies are not required to assess whether their contractors fall inside or outside IR35 – that responsibility sits with the contractor’s own PSC instead.
Until April 2026, a company qualified as small if it met at least two of the following three criteria:
- Annual turnover: no more than £10.2 million
- Balance sheet total: no more than £5.1 million
- Number of employees: no more than 50
From 6 April 2026, two of those three thresholds increased:
| Criterion | Before 6 April 2026 | From 6 April 2026 |
| Annual turnover | up to £10.2m | up to £15m |
| Balance sheet total | up to £5.1m | up to £7.5m |
| Number of employees | up to 50 | up to 50 (unchanged) |
A company only needs to meet two of the three criteria to qualify as small. This means a business with a £14m turnover, a £4m balance sheet and 45 employees now qualifies as small – and is exempt from the off-payroll working rules.
According to HMRC’s guidance on off-payroll working, approximately 14,000 companies may be reclassified as a result.
Does the IR35 threshold change apply to your business right now?
This is where it gets important – and where many businesses are making a mistake.
In most cases, and subject to the Companies Act rules on size changes (including the two-year rule), companies will not feel the practical impact until April 2027 at the earliest.
The reason is that IR35 company size is assessed by reference to the prior financial year, not the current one. So your classification for the 2026-27 tax year is based on your 2024-25 accounts. If those accounts show you as medium-sized under the old thresholds, you remain in scope for the full 2026-27 tax year – regardless of the new thresholds.
The practical timeline looks like this:
- 2026-27 tax year: Size determined by 2024-25 accounts, using the old thresholds
- 2027-28 tax year: Size determined by 2025-26 accounts, using the new thresholds – this is when most newly exempt companies will see the change apply
There is one exception: companies incorporated after the start of the tax year, or those whose first financial year ends during 2025-26, may qualify earlier. If you are in this position, take specific advice.
The bottom line: do not assume you are exempt from April 2026 without checking your prior year accounts against the new criteria.
What happens to your IR35 obligations if your company is now classified as small?
If your organisation qualifies as small under the new thresholds (once the timing rules above have been worked through), several things change:
You no longer need to issue Status Determination Statements (SDS). The legal obligation to assess each contractor’s IR35 status and issue a written determination before their first payment no longer applies to you.
IR35 responsibility reverts to the contractor’s PSC. Your contractors become responsible for determining their own employment status under what is known as Chapter 8 of ITEPA 2003 (the original IR35 rules, as opposed to the off-payroll Chapter 10 rules that apply to medium and large businesses).
You are no longer the fee payer for IR35 purposes. The financial liability for incorrect determinations shifts away from your organisation.
However – and this is critical – you still have obligations. Contractors working for a newly small client can request confirmation of the company’s size. You have 45 days to respond. If you fail to respond within that window, you are treated as not small and the off-payroll rules continue to apply. Getting into the habit of proactively communicating your company size to contractors and agencies at the start of each engagement is strongly recommended.
What if your company remains medium or large under IR35?
If your organisation remains above the small company thresholds – which will be the case for the majority of CXC’s clients – nothing changes in terms of your core IR35 obligations. You are still required to:
- Assess each contractor’s IR35 status individually
- Issue a Status Determination Statement before the first payment
- Provide a formal appeals process for contractors or agencies who disagree
- Deduct PAYE and NICs through the fee payer if the engagement is inside IR35
What has changed is the cost environment around those obligations. Since April 2025, employer National Insurance sits at 15% (up from 13.8%), with the secondary threshold reduced to £5,000. For every inside IR35 contractor on a typical day rate, this adds approximately £1,500-£2,000 per year to your total engagement cost. Organisations that have not yet repriced their contractor rate cards since April 2025 should do so as a priority.
HMRC’s Check Employment Status for Tax (CEST) tool can assist with status determinations, though it should be used alongside professional judgement rather than as the sole basis for a determination.
For a deeper guide to IR35 compliance for medium and large businesses, download our free IR35 compliance guide. You may also find our guide to top IR35 pitfalls for FTSE 250 firms useful if your organisation operates at scale.
The umbrella company PAYE changes running in parallel with IR35
Alongside the threshold changes, new PAYE rules for umbrella company arrangements also came into force on 6 April 2026. These are separate from the IR35 size threshold changes but affect many of the same organisations.
Under the new rules:
- Responsibility for deducting PAYE typically sits with the “relevant party” in the supply chain – often the agency, or the end client where no qualifying agency exists
- End users are now jointly and severally liable if an umbrella provider fails to account for PAYE and NICs correctly – even if the end user is not the direct fee payer
This means that if you engage contractors through an agency that uses an umbrella company, and that umbrella company is non-compliant, you could face tax liability. The due diligence bar for umbrella arrangements has risen significantly. Organisations should:
- Confirm that any umbrella companies in their supply chain are accredited by recognised industry bodies such as FCSA or Professional Passport (noting that HMRC does not operate a formal accreditation scheme)
- Request evidence from agencies that their umbrella arrangements comply with the new rules
- Review contracts to ensure appropriate indemnities are in place
For a full breakdown of the umbrella reform changes, read our UK umbrella reform 2026 guide.
Three steps to take now on IR35 compliance
1. Check your company size against the new thresholds
Pull your most recent filed accounts (2024-25 if available, otherwise 2023-24) and check turnover and balance sheet total against the new thresholds. Do this for each legal entity that engages contractors separately – size is assessed at entity level, but group aggregation rules may apply where the company is part of a wider group.
2. Communicate your status to your supply chain
Whether you are newly exempt or remain in scope, proactively telling your agencies and contractors which rules apply to them avoids disputes and protects you from the 45-day response trap described above.
3. Review your umbrella arrangements
Even if the threshold changes do not affect you, the umbrella PAYE rules do. Review your agency contracts and request confirmation that umbrella arrangements in your supply chain are compliant with the April 2026 rules.
Frequently asked questions about IR35 changes 2026
Am I automatically exempt from IR35 if my turnover is below £15m?
Not automatically. You need to meet at least two of the three criteria (turnover below £15m, balance sheet below £7.5m, or fewer than 50 employees). You also need to check that this applies based on your prior year accounts, as size is assessed by reference to the previous financial year. Most companies will not see the practical effect until the 2027-28 tax year.
Do I still need to comply with IR35 even if I am a small company?
The off-payroll working rules (Chapter 10 of ITEPA 2003) no longer apply to small companies. However, the original IR35 rules (Chapter 8) still exist and still apply to contractors working for small clients. The difference is that under Chapter 8, it is the contractor’s PSC – not your organisation – that is responsible for the determination. You are not off the hook entirely: if HMRC investigates a contractor who worked for you, your records of the engagement may still be relevant.
What is a Status Determination Statement and do I still need to issue one?
An SDS is a written document setting out whether a contractor’s engagement is inside or outside IR35 and the reasons for that conclusion. Medium and large businesses must issue one before the first payment of each engagement. If your company qualifies as small, you are no longer required to issue SDS documents – but it remains good practice to keep clear records of your contractor engagements regardless.
What should I do if a contractor asks me to confirm my company size?
You have 45 days from the date of the request to confirm your company size in writing. If you do not respond within this window, you are treated as not small for IR35 purposes and the off-payroll rules apply. Establish a process now so that size confirmation requests are handled promptly.
How does CXC help businesses navigate the April 2026 changes?
CXC Comply provides end-to-end IR35 compliance support for medium and large organisations, including contractor classification, Status Determination Statement management, appeals handling, and supply chain due diligence. For organisations affected by the umbrella company PAYE changes, CXC can also help review and restructure agency arrangements to ensure compliance. Speak to our team to find out how we can support your organisation through the 2026 changes.
The April 2026 threshold changes reduce the IR35 compliance burden for a significant number of UK businesses – but they do not eliminate it, and they introduce new complexities around timing, communication and umbrella arrangements that organisations need to manage carefully.
If you are unsure whether the changes apply to your business, or if you want to ensure your IR35 processes remain fit for purpose for 2026-27 and beyond, find out how CXC can help your organisation stay compliant.
Book a free consultation with CXC
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