IR35 small company threshold changes April 2026 — what limited company contractors need to know
Direct Answer
From 6 April 2026, the definition of a "small company" changed: turnover threshold up from £10.2m to £15m, balance sheet up from £5.1m to £7.5m. Approximately 14,000 additional companies now qualify as small. Where your end-client is small, the off-payroll working rules do not apply — and your PSC takes back responsibility for its own IR35 determination. If you are affected, you need to act now.
What changed and when
The off-payroll working rules (commonly called IR35) place the responsibility for IR35 status determination on the end-client — but only where that client is a medium or large company. Where the client is small, the PSC (your limited company) makes its own determination.
From 6 April 2026, the thresholds defining a "small" company increased:
- Turnover: up to £15 million (was £10.2 million)
- Balance sheet total: up to £7.5 million (was £5.1 million)
- Employees: up to 50 (unchanged)
A company is small if it meets at least two of the three criteria. Around 14,000 companies that were previously medium-sized are now classed as small under these new thresholds.
There is a timing caveat: company size is assessed by reference to the prior financial year. So the practical effect may not be felt until later in 2026 or into 2027, depending on when your client's financial year ends.
What this means for your IR35 position
If your end-client was previously medium-sized — and has now tipped into the small category — the off-payroll Chapter 10 rules no longer apply to your engagement. That means:
- Your client no longer needs to issue a Status Determination Statement (SDS)
- Your client is no longer the fee-payer responsible for deducting PAYE if the engagement is inside IR35
- Your PSC is now responsible for assessing whether the engagement is inside or outside IR35
- If HMRC later challenges that assessment and wins, the tax liability sits with your company
This is not a free pass. The underlying IR35 tests — control, substitution, mutuality of obligation — still apply. What changes is who makes the call. That now being you means the risk is also yours.
Read our IR35 guide for a plain English breakdown of the three key tests and what an outside determination actually requires.
The PAYE set-off mechanism — a significant protection
One genuinely good development: the new PAYE set-off mechanism, in place since April 2024, has expanded and clarified under the 2026 rules.
In practice, this means: if HMRC successfully challenges your outside IR35 determination and raises a PAYE liability, they must offset the Income Tax and NICs your company has already paid on that income. The same money cannot be taxed twice.
Before this mechanism existed, a successful HMRC challenge could result in crippling double taxation — corporation tax and dividend tax already paid through the company, plus a full PAYE and NIC bill on top. That risk has been substantially reduced.
The offset is not automatic in every situation — complex cases, multiple tax years, and large sums can complicate the calculation. But it is a meaningful protection for contractors who get a determination wrong in good faith.
See our separate piece on how the IR35 offset rule works for the full picture.
Joint and Several Liability rules — what they are and who they affect
Effective 6 April 2026, Joint and Several Liability (JSL) rules target non-compliant umbrella company supply chains. Where an umbrella company fails to pay over PAYE correctly, HMRC can pursue the recruitment agency or end-client for the unpaid tax.
If you work through your own limited company (PSC) on a direct contract, JSL does not directly apply to you. But there are two scenarios where it is worth knowing about:
- If you work alongside umbrella contractors on the same client site, and the umbrella is later found non-compliant, JSL exposure for your client may change how they structure future contractor engagements
- If you are ever considering using an umbrella — avoid non-compliant ones, as the supply chain liability rules make this worse for everyone in it
For most PSC contractors, the more pressing issue is ensuring your own IR35 status determinations are defensible — especially with ~14,000 more engagements now falling back to self-determination.
What you need to do if you are newly responsible for your own determination
If your end-client has tipped into the small company bracket, here is the practical checklist:
- Check your contract. Does it include a genuine right of substitution? Is control language appropriate for a B2B arrangement?
- Document your working practices. What actually happens on site? If the contract says one thing and reality says another, HMRC looks at reality.
- Consider a formal status review. An IR35 specialist can review your contract and working practices and provide a reasoned opinion. This is not the same as a check from an accountant — use a specialist. Autobooks can refer you if needed.
- Keep records. Retain evidence of substitution (even if never used), evidence you are not integrated into the client's organisation, and evidence of financial risk in the engagement.
Getting the financial difference between inside and outside IR35 right matters too — being inside IR35 when you thought you were outside can cost over £11,000 per year at a £400/day rate.
Your accountant cannot make the IR35 determination for you — but they should make sure your company structure is in the right shape to support it, and that your SA100 and dividend extractions are consistent with your claimed status.
If your end-client has become a small company, you may now be responsible for your own IR35 determination.
Talk to AutoBooks today — we can help you assess your status, document your working practices, and stay fully compliant at £89+VAT/month.