IR35 Thresholds Just Rose — Thousands of Firms Are Now Exempt. Here's What Contractors Should Do

If you work as a contractor through your own limited company, a quiet rule change from April 2026 may have already shifted who's responsible for deciding your tax status — and it's worth checking whether it applies to your current client.

What changed

From 6 April 2026, the financial thresholds used to determine whether an end-user business counts as "small" — and therefore exempt from the 2021 off-payroll working reforms — increased significantly. The turnover threshold rose from £10.2 million to £15 million, and the balance sheet total threshold rose from £5.1 million to £7.5 million, according to Greenberg Traurig. The employee threshold stays unchanged at an average of 50.

HMRC estimates around 14,000 companies will be reclassified as "small" under the new figures — meaning they fall entirely outside the 2021 reforms for the 2026–27 tax year.

Why this matters for contractors

Under the 2021 reforms, medium and large private-sector clients — not the contractor — became responsible for assessing IR35 status and issuing a Status Determination Statement (SDS) before the contractor's first payment. If your end-user client now qualifies as "small" under the new thresholds, that responsibility reverts back to your own personal service company (PSC), according to CXC Global. You — not the client — now have to determine your own status and bear the financial risk if HMRC later disagrees.

There's also a separate change worth knowing about: from 6 April 2026, agencies and end clients can become jointly liable for PAYE underpayments where contractors are supplied through umbrella companies, even where the umbrella company runs the payroll, per Payfit's employer guide.

Checklist: what to do if you contract through a PSC

• Ask your current client directly whether they still meet the criteria for a "medium or large" business under the new £15 million turnover / £7.5 million balance sheet thresholds.
• If your client has become "small," confirm in writing that responsibility for your IR35 status determination has passed back to you.
• Review your working practices — control, substitution rights, and mutuality of obligation — against HMRC's Check Employment Status for Tax (CEST) tool.
• If you're newly responsible for your own status, consider getting an independent IR35 contract review before your next engagement starts.
• If you work through an umbrella company, check who is contractually responsible for PAYE compliance, given the new joint-liability rules for agencies and end clients.
• Keep records of any status determinations, contracts, and correspondence — HMRC can still open enquiries retrospectively.

How the UK's approach compares

Worker classification rules like IR35 aren't unique to Britain. In the United States, the IRS uses a multi-factor common-law test to distinguish employees from independent contractors, with the burden generally falling on the engaging business rather than shifting based on company size. Australia's Fair Work Ombudsman similarly applies a "totality of the relationship" test for sham contracting, without a threshold-based exemption comparable to the UK's small-company carve-out.

Key Numbers

• £15 million: new turnover threshold for "small company" IR35 exemption (up from £10.2m)
• £7.5 million: new balance sheet threshold (up from £5.1m)
• 50: unchanged employee threshold
• 14,000: companies HMRC estimates will be newly reclassified as small

Sources

• Greenberg Traurig: Threshold changes to UK off-payroll working rules
• Merranti Accounting: Higher IR35 small company thresholds from 2026
• CXC Global: IR35 changes 2026
• Payfit: Off-Payroll Working & IR35 Rules 2026/27
• gov.uk: Check Employment Status for Tax

Educational content only — not financial advice.