IR35 in 2026: What the New Small Company Thresholds Mean for Contractors

title: "IR35 in 2026: What the New Small Company Thresholds Mean for Contractors" category: Work & Income date: 2026-07-09 tags: [ir35, contractors, off-payroll-working, self-employed] image: https://picsum.photos/seed/ir35-contractor-2026/2400/1350

If you work through your own limited company as a contractor, a quiet change to company size thresholds could shift who decides your IR35 status — and it's worth understanding before it affects a contract you're currently on or about to sign.

What's changing

From 6 April 2026, the financial thresholds used to decide whether an end client counts as "small" — and is therefore exempt from the 2021 off-payroll working reforms — are increasing. Turnover rises from £10.2 million to £15 million, and balance sheet total rises from £5.1 million to £7.5 million; the employee threshold stays at an average of 50.

Why this matters if you contract

Under the 2021 reforms, medium and large private-sector clients are responsible for determining a contractor's IR35 status and telling HMRC. If a client is "small," that responsibility shifts back to the contractor's own limited company (PSC) to self-assess. Because the size thresholds are rising, around 14,000 companies are expected to be reclassified from medium to small — meaning a meaningful number of contractors will suddenly find that responsibility for their IR35 status has moved from the client back to them.

This isn't necessarily bad news — many contractors prefer having control over their own status determination — but it does mean more people need to properly understand and correctly apply the IR35 tests, since the compliance burden and financial risk of getting it wrong now sits with their own company rather than the client's HR or payroll team.

Checklist: what to do if your client's status might change

• Ask your end client directly whether their size classification is changing from medium to small for the 2026/27 financial year — this isn't always communicated proactively.
• Check the client's most recent published accounts against the new thresholds (£15m turnover, £7.5m balance sheet, 50 employees) if you can't get a direct answer.
• Understand you may need to self-assess IR35 status if your client becomes classified as small — get professional advice if you're unsure how to apply the tests.
• Review your contract terms for anything that changes with a status handover, particularly around indemnities.
• Keep records of your working practices (control, substitution rights, mutuality of obligation) regardless of who determines status — this evidence matters either way.

The other change worth knowing: mandatory payrolling of benefits

Separately from IR35, mandatory payrolling of benefits becomes compulsory from April 2026 — benefits like medical cover or company perks must now be taxed through payroll in real time rather than reported after the fact via a P11D form. If you receive benefits through a limited company arrangement or an umbrella company, this changes how and when tax on those benefits is collected.

Practical timeline

Because IR35 assessments rely on a client's accounts from the previous financial year, most contractors will only see the practical effect of the threshold change gradually, as clients' next annual accounts are published and reclassifications become apparent — likely becoming visible through the rest of 2026 and into 2027.

How other countries handle contractor classification

The US uses a fundamentally different, common-law based "control test" via the IRS to distinguish employees from independent contractors, without an equivalent client-size threshold system — misclassification risk falls primarily on the hiring business regardless of its size. Germany's Scheinselbstständigkeit (false self-employment) rules similarly focus on the actual working relationship rather than company size. The UK's size-based exemption system is relatively unusual internationally, and the 2026 threshold increase makes it, if anything, more UK-specific than before.

Key Numbers

• £15 million — new "small company" turnover threshold (from £10.2 million)
• £7.5 million — new balance sheet threshold (from £5.1 million)
• 50 employees — unchanged employee threshold
• ~14,000 — companies expected to be reclassified as small
• 6 April 2026 — effective date of the changes

Sources

• Threshold Changes to UK Off-Payroll Working Rules (IR35) — Greenberg Traurig
• Higher IR35 Small Company Thresholds from 2026 — Merranti Accounting
• New IR35 off-payroll thresholds to apply from 6 April 2026 — Forvis Mazars
• Understanding off-payroll working (IR35) — GOV.UK

Educational content only — not financial advice.