Changes to the off-payroll working rules coming into force this month will relieve scaling businesses of costly compliance obligations. Yet contractors who fail to adjust their rates risk being caught out, writes Business Matters.
From this month, a raft of amendments to the UK’s IR35 tax legislation will redraw the lines of responsibility between businesses and the freelancers they engage. For thousands of companies that have until now shouldered the burden of determining whether their contractors fall inside or outside the off-payroll working rules, the changes promise welcome relief. For freelancers, however, the picture is rather more complicated.
IR35, in essence, is the government’s mechanism for ensuring that individuals who work through intermediaries such as personal service companies, but whose engagements resemble those of employees, pay a broadly equivalent amount of income tax and National Insurance. According to HMRC, the framework has already shifted more than 130,000 workers into deemed employment tax status since 2021 – a figure that underscores both its reach and its continuing impact on the UK’s contracting workforce.
Under the current regime, responsibility for determining a contractor’s IR35 status rests largely with the hiring organisation – provided that organisation qualifies as medium or large under company law. Smaller companies have been exempt, with the onus falling instead on the contractor’s own personal service company. The April 2026 changes significantly raise the bar for what constitutes a “small” company, meaning many more businesses will now fall beneath that threshold and be freed from compliance duties.
A wider net for the small company exemption
Previously, a company qualified as small if it met at least two of three criteria: annual turnover of no more than £10.2 million, a balance sheet total of no more than £5.1 million, and no more than 50 employees. From April 2026, the turnover ceiling rises to £15 million and the balance sheet limit to £7.5 million, whilst the headcount threshold remains unchanged at 50 staff. The consequence is that a significant number of businesses that were previously classified as medium-sized will now be treated as small, and the obligation to issue a Status Determination Statement – the legal document setting out whether a contractor sits inside or outside IR35 – will pass back to the contractor.
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