From 6 April 2026, the government raised the thresholds that determine whether a company counts as “small” for IR35 purposes. The new limits — turnover of £15 million, a balance sheet total of £7.5 million, and 50 employees — mean that around 14,000 companies previously classed as medium-sized now qualify as small.

For contractors working through a personal service company (PSC), this matters. If your end client is reclassified as small, the off-payroll working (OPW) rules no longer apply to that engagement and responsibility for assessing your IR35 status shifts to you.

But the crucial detail most commentary misses is that for the majority of contractors, this change won’t have a practical effect until April 2027, not April 2026. We’ll explain why below.

How the Off-Payroll Working (OPW) Rules Work

If you work through your own limited company (a PSC) for a client, the rules for who handles tax depend on the size and sector of your end client.

Large or medium-sized private sector clients: The OPW rules apply. Your client must assess whether IR35 applies and issue a Status Determination Statement (SDS). If the role is “inside IR35,” the fee-payer (usually your agency or client) deducts income tax and National Insurance before paying your PSC.

Small private sector clients: The OPW rules do not apply. Your PSC is responsible for determining whether IR35 applies under the original Chapter 8 rules (in place since 2000). You report and pay any tax due through self-assessment.

Public sector clients: The OPW rules always apply, regardless of size.

A company qualifies as small if it meets at least two of the three size criteria in the relevant financial year.

What Changed from April 2026

The government increased the small company thresholds to align them with the general Companies Act definition. Here is how the figures compare:

A company qualifies as small if it meets at least two of the three criteria. Because the financial limits have risen substantially, companies that previously sat just above the old thresholds may now fall below the new ones, reclassifying from medium to small.

HMRC estimates this change affects approximately 14,000 companies across the UK.

The Timing Question: When Does This Actually Affect You?

The new thresholds took effect on 6 April 2026, but the IR35 size test looks at the client’s accounts for the previous financial year. That means:

2026–27 tax year (the current year): Your client’s size is determined by their 2024–25 accounts, which are measured against the old thresholds (£10.2m turnover, £5.1m balance sheet). The new limits have no effect yet.

2027–28 tax year onwards: Your client’s size will be determined by their 2025–26 accounts, measured against the new thresholds (£15m turnover, £7.5m balance sheet). This is when the reclassification takes practical effect.

So most contractors won’t see any change until April 2027 at the earliest.

There are limited exceptions. A newly incorporated company, or one with an unusual accounting year-end that straddles the changeover, could be affected sooner. But for the vast majority of engagements, the current tax year (2026–27) continues under the old thresholds.

This is why it’s important to say “if and when” your client qualifies as small under these timing rules, not to assume the shift has already happened.

How to Check Your End Client’s Size

If you think your end client might now qualify as small, there are two practical steps:

1. Check Companies House. Your client’s filed accounts will show their turnover, balance sheet total, and employee numbers. Make sure you are looking at the correct accounting year — for the 2027–28 tax year, you need accounts covering a period ending in the 2025–26 financial year. You can search for any UK company’s filings at Companies House.
2. Request written confirmation from your client. Under the legislation, you have the right to ask your end client to confirm in writing whether they qualify as small for OPW purposes. Your client then has 45 days to respond.

This 45-day rule is important:

• If the client confirms they are small, the OPW rules cease to apply, and your PSC takes on IR35 responsibility.
• If the client confirms they are not small, the OPW rules continue as before.
• If the client fails to respond within 45 days, they are treated as not small — meaning the OPW rules continue to apply and the client retains responsibility for issuing an SDS.

Always request confirmation in writing and keep a copy. This creates an evidence trail that protects you if HMRC later queries the arrangement.

What Happens If Your Client Becomes Small?

If and when your end client is reclassified as small under the new thresholds, the following changes apply to your engagement:

• The OPW obligations fall away. Your client no longer needs to issue a Status Determination Statement.
• Your PSC becomes responsible for assessing whether IR35 applies, under the original Chapter 8 rules.
• You must self-assess your IR35 status and, if the engagement is inside IR35, account for the correct tax and National Insurance through your PSC.

HMRC can challenge your determination. If they disagree with your assessment, they can open an enquiry, and if you’ve got it wrong, you could face back taxes, interest, and penalties.

Getting this assessment right is critical, and it’s not always straightforward.

Practical Steps for Contractors

If the threshold changes could affect you, here’s what to do:

• Identify your end client’s size using the correct accounting year (not just the latest filed accounts — the year that corresponds to the relevant tax year matters).
• Request written confirmation from your client if their size status is unclear. Remember the 45-day rule.
• Review your working practices. If you do become responsible for assessing IR35, the key indicators are the same as they’ve always been: control, substitution, and mutuality of obligation. How you work in practice, not just what your contract says, is what matters.
• Seek specialist IR35 advice before self-assessing your status. The consequences of getting it wrong can be significant.
• Keep detailed records of your contracts, working arrangements, and any correspondence about your client’s size status.
• Consider an umbrella solution if you want to remove IR35 risk entirely.

The Umbrella Solution

If managing your own IR35 assessment feels like a risk you’d rather not take, working through a compliant umbrella company removes the issue altogether.

When you work through an umbrella, you are employed by the umbrella company. Tax and National Insurance are deducted at source through PAYE; there is no PSC, no SDS, and no IR35 self-assessment to worry about.

SmartWork is an FCSA-accredited and SafeRec-certified umbrella provider, meaning we meet the highest standards of compliance. With umbrella employment, you also benefit from continuity of employment, including holiday pay and other statutory entitlements.

PGMOL Case: What HMRC’s Withdrawal Signals

In July 2026, HMRC abandoned its high-profile IR35 case against PGMOL (the body responsible for Premier League referees). This suggests HMRC is being more selective about enforcement, focusing on clear-cut cases rather than borderline ones.

But it does not change the law. IR35 remains in force, and if you self-assess incorrectly, HMRC can still open an enquiry. The risk of getting it wrong hasn’t gone away — only the likelihood of HMRC challenging marginal cases may have shifted.

For more detail on HMRC’s approach, see their off-payroll working guidance.

How SmartWork Can Help

Whether you’re navigating the threshold changes or considering your options, SmartWork’s dedicated business managers are here to help. We offer:

• A fully compliant umbrella solution that removes IR35 risk
• FCSA accreditation and SafeRec certification — the gold standard in compliance
• Five-star contractor reviews

Get in touch and speak with our team about the umbrella working solution. Please remember to follow us on LinkedIn, Facebook, and Twitter if you’d like to follow along for new articles and industry updates.