IR35 Threshold Changes 2026: What UK Businesses Need to Know

Somewhere right now, a mid-sized agency is issuing Status Determination Statements for a handful of contractors it engages through their personal service companies — running each one through the CEST tool, documenting the reasoning, operating PAYE and National Insurance on anyone who comes back "inside IR35". That's been the job since the 2021 private sector reforms, and for a lot of medium-sized businesses, it's added real administrative weight to every contractor engagement.

From 6 April 2026, a meaningful number of those businesses simply won't have to do this anymore. Not because IR35 itself is being scrapped — it isn't — but because HMRC has confirmed the company size thresholds that determine who's exempt are rising for the first time since the rules took their current shape, and the change is large enough to shift roughly 14,000 businesses out of scope entirely.

What IR35 Actually Requires, Briefly

Since the 2021 private sector reforms, medium and large businesses engaging a contractor through their own limited company (a personal service company, or PSC) have carried the responsibility for determining that contractor's tax status — whether the engagement looks, in substance, more like genuine self-employment or more like disguised employment. Get an "inside IR35" determination, and the fee payer — the end-client or an agency in between — has to operate PAYE and employee National Insurance on payments to the PSC, on top of employer NICs and any Apprenticeship Levy due.

Small businesses have always been carved out of this. Where the small company exemption applies, the determination responsibility reverts to the contractor's own PSC instead — the original, pre-2021 version of the rules. What's changing on 6 April 2026 isn't the exemption itself. It's exactly how many businesses now qualify for it.

The Actual Numbers

A company only needs to meet two of these three thresholds to count as "small" and fall outside the off-payroll working rules — it doesn't need to clear all three. A business with a £14 million turnover, a £4 million balance sheet, and 45 employees, for instance, now qualifies as small under the new figures, having previously sat above the old turnover and balance sheet limits.

HMRC's own figures put the scale of this at around 14,000 businesses moving from "medium" to "small" purely as a result of the threshold change — not because anything about how those businesses actually operate has shifted, but because the line HMRC draws around "small" has moved to include them.

Who This Actually Shifts Responsibility To

For a business that newly qualifies as small under the updated thresholds, the practical change is real: it no longer needs to issue Status Determination Statements for the contractors it engages no longer need to run CEST assessments and no longer carry the risk of HMRC transferring liability back to it for a status determination it got wrong or failed to make.

That responsibility doesn't just disappear — it reverts to the contractor's own personal service company, under the original pre-2021 IR35 rules. For contractors working with these newly exempt end clients, the practical effect is the opposite of what the end clients experience: they now need to assess their own IR35 status themselves, on the older rules, rather than having that determination made and administered on their behalf.

The rules haven't gotten simpler here — the obligation has just moved from one party to another. A contractor who's never had to think about IR35 status because their end-client always handled it may suddenly need to, purely because that end-client's own size classification changed.

The Timing Detail That Catches People Out

Whether a business actually qualifies as small for a given tax year isn't a simple snapshot of its current numbers — it's based on meeting the thresholds across two consecutive financial years, with a specific delay built in between when a company's accounts confirm its size and when the IR35 status actually changes. In practice, that delay runs roughly six months and six days from the relevant accounts filing date. A business that only just dipped below the new thresholds in its most recent set of accounts doesn't become exempt immediately — the change in status takes effect from a specific date tied to that filing timeline, not from the moment the accounts are signed off.

There's a further wrinkle for businesses operating as part of a group or joint venture: the small company test isn't applied to the individual entity in isolation. It's applied to the aggregate turnover and balance sheet total of all connected entities, which means a genuinely small standalone business sitting inside a larger group structure may still not qualify for the exemption, even if its own individual figures would otherwise clear the new thresholds comfortably.

What End Clients Should Actually Do Before April 2026

• Check your business's turnover and balance sheet total against the new thresholds using the two-consecutive-year test, not just the most recent single year
• If you're part of a group or joint venture, run the aggregate calculation across all connected entities, not just your own entity's standalone figures
• Work out the specific date your business's status actually changes, given the accounts-filing-date delay, rather than assuming it happens automatically on 6 April 2026 for everyone
• If newly exempt, communicate clearly with contractors and agencies about the change, since the determination responsibility genuinely shifts to them going forward
• If your business stays medium or large under the new thresholds, nothing here changes — SDS and PAYE/NI obligations continue exactly as before

What Contractors Should Actually Do

If your end-client is likely to become exempt under the new thresholds, it's worth finding out directly rather than assuming your current arrangement continues unchanged. Where the exemption does apply, the responsibility for determining your own IR35 status — and the tax consequences of getting it wrong — sits with your PSC, not with the end-client or the agency that previously handled it. That's a meaningfully different risk position than having a business with proper compliance processes making that call on your behalf.

Frequently Asked Questions

Does this mean IR35 is being abolished? No — the rules themselves are unchanged. Only the size thresholds determining which businesses are exempt from applying them have moved.

Does the CEST tool still matter for businesses that stay medium or large? Yes, though CEST doesn't always produce a clear determination and doesn't test every aspect of employment status, so businesses still using it are expected to exercise reasonable care around any inconclusive result rather than treating CEST as a complete answer on its own.

If our business becomes exempt, do we need to tell HMRC? There's no separate notification requirement to trigger the exemption itself — it applies based on meeting the size test, though clear internal documentation of how and when your business qualified is worth keeping in case it's ever questioned.

Does this change affect public sector engagements too? No — the size-based small company exemption has only ever applied to the private sector. Public sector bodies remain within the scope of the off-payroll working rules regardless of size.

What happens if we get the size classification wrong? The same liability exposure that's always existed under IR35 applies here too — if a business incorrectly treats itself as exempt when it doesn't actually qualify and fails to issue required determinations as a result, HMRC can pursue the tax and NIC liability that should have been accounted for.

The Bottom Line

This is a genuine, HMRC-confirmed change affecting a real number of businesses — not a rumour or a proposal still working through consultation. For roughly 14,000 UK businesses, April 2026 removes a real piece of ongoing compliance administration. For the contractors who work with them, it adds a responsibility that previously sat somewhere else. Either way, it's worth checking where your specific business or engagement actually lands under the new thresholds now, rather than discovering the answer after the date has already passed.

Payroll obligations tied to IR35 determinations — PAYE, employee and employer NICs, Apprenticeship Levy calculations — are exactly the kind of ongoing, detail-heavy compliance work an outsourced payroll team is built to keep current, particularly through a transition year where a business's own status may shift partway through.