IR35: Small company threshold changes to OPW-exempt 14,000 clients
HMRC confirms to Kingsbridge an off-payroll working exemption for scores of currently medium-sized companies, with effect from April 6th 2026.…
The taxman is no longer talking about April 2026 for small company threshold changes changing up off-payroll working.
HMRC has superseded its alert that new company size thresholds won’t impact off-payroll working (OPW) until ‘at least April 2026,’ by revising it to “2027/28.”
The tax office’s change of date may owe to its officials initially overlooking the OPW rules relying on complete financial years to assess company size.
For example, if a company turns ‘small,’ such OPW-exempt status only applies in the tax year after a full financial year, with accounts filed nine months after year-end.
21-month pushback
Combining both (OPW rules and size-change predicated on 12 and 9 months, respectively) adds 21 months to becoming ‘small’ and OPW’s scope, in turn, changing.
Firms that fall below April 2025’s two new size thresholds (2/3 must apply) therefore won’t see their off-payroll responsibilities change until at least April 6th 2027.
‘Size threshold changes’
HMRC now cites “2027/28” (not its initial alert of ‘at least April 2026’) in “Off-payroll working legislation…meaning of medium or large-sized…size threshold changes from 6 April 2025.”
In the document – less wordily known as ESM10006A, HMRC wrote on April 8th 2025:
“For the usual 12-month financial year, the earliest tax year the transitional provision will impact a client is 2027/28.
“This is because the earliest possible filing date for an accounting period beginning on or after 6 April 2025 is in January 2027, which would be relevant for the 2027/28 tax year.”
‘No practical impact for off-payroll working until…’
However, not everyone seems to agree with this new, revised ‘earliest impact date of 2027/28,’ including the UK’s largest accountancy body.
The body, the Institute of Chartered Accountants in England (ICAEW), says:
“The company size threshold changes will have no practical impact for off-payroll working until April 2026 at the very earliest.”
In a guidance note aimed at ICAEW member firms, the institute adds that the practical impact for OPW will be “April 2027 in most cases.”
‘Not sure that the ICAEW are correct’
Awkwardly for the institute, one of its own member companies – tax consultancy David Kirk & Co – says the ICAEW appears to have got wrong what HMRC appears to have (now) got right.
“I am not sure that the ICAEW are correct when they say, ‘in most cases,’” the consultancy’s founder David Kirk told Kingsbridge. “I think it is in all cases.”
The ICAEW has been invited to comment.
‘Depends on when accounting periods end’
A director at a top accounting business advisory disagrees with Mr Kirk, seemingly on the basis that businesses file on different dates.
In a statement to Kingsbridge, the director said: “I absolutely agree that the change won’t be effective until…April 2027 for some [end users], depending on when their accounting period ends.
“The key message is that the world of employment status and IR35 is constantly evolving. So engagers of off-payroll workers need to stay on top of developments.”
Discussions, variation, and tailored advice
HMRC has acknowledged that discussions have ensued regarding small company threshold changes for OPW purposes.
In line with the accounting business director, HMRC currently believes implementation dates will vary based on individual business circumstances.
And even though they don’t seem to agree among themselves, HMRC recommends tax advisers are consulted where specific advice on OPW and company size thresholds is required.
‘Face value’
Kingsbridge regularly issues advice in its role as an IR35 insurer.
The company says it took HMRC’s initial alert over the OPW timeline for the small company thresholds “at face value.”
But having first been told April 2026 was the earliest impact date of the new thresholds for OPW purposes, Kingsbridge’s Ryan Dawson is now a bit scarred.
‘Company size ultimately relative to the two previous financial years’
“We gave HMRC the benefit of the doubt, taking its comments at face value, even though we knew company size is ultimately relative to the previous two financial years,” he says.
“When we look back at what we were informed by HMRC in February 2025 – that April 2026 will be the earliest OPW ‘impact’ date on a client – it begs the question ‘What is ‘impact’?”
‘Misleading, or misunderstanding?’
Kingsbridge’s IR35 Project Manager, Mr Dawson continued: “Might ‘impact’ have just meant checking figures against revised thresholds? Misleading? A misunderstanding? Or wrong? Who knows.
“Regardless, determinative on its own, 2026 definitely won’t be! And HMRC has now confirmed in the updated ESM10006A, what we as IR35 insurers quietly expected – that the small company threshold under OPW is unlikely to have any practical effects until tax year 2027/28.”
‘April 6th 2027 is the earliest end clients will be outside off-payroll working rules scope’
The boss of Brookson, chartered accountant Matt Fryer, echoed yesterday in a statement to Kingsbridge:
“Based on HMRC’s latest update [to ESM10006A], it appears that the earliest accounting period likely to benefit from the increased company size thresholds is April 30th 2026, with the deadline for filing the accounts for that period being January 31st 2027.
“Therefore, the earliest period when end-client companies will be outside the scope of the off-payroll working rules is from April 6th 2027, assuming the accounting periods April 30th 2025 and April 30th 2026 meet the threshold criteria.”
‘Small company’ threshold changes for 2025/26: two out of three must apply
The new small company thresholds (effective April 5th 2025) are as follows and two must be met to be a ‘small company’:
- Turnover of more than £15million (up from £10.2million in 2024/25)
- Balance sheet total of more than £7.5million (up from £5.1million in 2024/25)
- Monthly average of 50 employees (unchanged from prior tax years)
Due to the increases in turnover and balance sheet, up to 14,000 firms are set to reclassify as ‘small,’ meaning (those of them that hire contractors) will no longer need to consider the OPW rules.
‘Disappointing reality for 14,000 firms, as OPW-free future is farther off’
“HMRC has now provided clarity on the timeline affecting medium-sized firms potentially facing an OPW-free future,” says Kingsbridge’s Mr Dawson.
“But the disappointing reality is that for years still to come, those 14,000 enterprises are going to endure further burdens when hiring contractors.”
‘Off-payroll PAYE debt risk posed by acting before 2026/27’
Asked about the changes that look set to unburden thousands of firms from IR35 status responsibility, Mr Kirk, a chartered tax adviser, said last night:
“I am sure businesses would like to apply the changes sooner [than 2026/27], but they won’t be able to.
“[End-clients who move from ‘medium-sized’ to ‘small’] will need to mark the change by ceasing to issue Status Determination Statements to new contractors.
“And they will need to give out notices to existing contractors that previously issued SDSs no longer apply.
“But private sector end-client organisations ought to note – if they were to do either of these things prematurely, it would mean that they would be liable for any off-payroll PAYE debt.”
‘End-users must monitor being near new company size threshold limits’
Susan Ball, Employment Tax Partner at RSM UK, says the “key” for end users near the two new thresholds’ “limits” is to “monitor their situation.”
“Should end users be reclassified as ‘small’ in future years, the determination for IR35 shifts back to the contractor. [And yes] some end users would have liked the change to impact sooner.”
Further responding to questions, Ball added to Kingsbridge: “Perhaps the end users – and contractors who work with them – who will be most frustrated are those that end up dropping out [of OPW’s scope], only to be back in several years later as they grow.”
‘Concerned for public sector’
However, there could be an even more frustrated group of end users – and contractors – according to PSTAX Director Angela Ferguson.
An IR35 specialist, Ferguson explained her assessment to Kingsbridge: “As a public sector [accounting] specialist, this doesn’t affect our clients as they are all included [in OPW].
“I would be concerned why the [company size] thresholds are being raised. Why should the private sector have this [potential] exemption [from the off-payroll working rules] where the public sector does not?”
‘Labour should reassess IR35 off-payroll working rules’
It’s a question, and sector, that should be put into a mix for the government to think about and answer on, according to Ms Ball.
Last night, RSM’s Employment Tax Partner told Kingsbridge: “The government should reassess the cost to businesses, the public sector, and the third sector of managing and operating the off-payroll working rules, as well as HMRC’s role in policing them. The Labour government needs to consider whether they are achieving the right balance between administrative burden and additional tax revenue.”
How Kingsbridge can help
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We also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.
To find out more, get a quote or contact us today.
Simon Moore, Managing Director at Moore News Ltd
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.
