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HMRC confirms to Kingsbridge an off-payroll working exemption for scores of currently medium-sized companies, with effect from April 6th 2026.
Two of the three thresholds to be a “small company” – those exempt from IR35 Off-Payroll Working rules, are to become easier to meet.
Turnover and balance sheet totals to qualify as a small company will leap from £10.2m to £15m, and from £5.1m to £7.5m, respectively.
The third threshold — a monthly average of 50 employees — isn’t going to change from 2026-27, unlike the first two thresholds (above) which will.
‘Small company’
Only two of the three thresholds need to be met to be defined as a “small company” in the UK, thereby winning exemption from the OPW rules.
So end-client firms with a sub-£15m turnover and a sub-£7.5m balance sheet will soon no longer need to issue Status Determination Statements.
Private sector end-users who meet just one new threshold, but have 50 staff or under, soon won’t need to IR35-test PSCs anymore either.
‘14,000 companies will go from medium-sized to small in the UK from April 6th 2026’
In total, the right to gauge their own IR35 status will revert to PSCs hireable by 14,000 additional companies from April 6th 2026.
“14,000 companies will go from ‘medium’ to ‘small’ from 06.04.26, and ‘small’ is OPW-exempt,” says Kingsbridge, citing official figures.
“In other words,” the leading IR35 insurer adds, “if a commercial end-user is small, IR35 status and tax liability responsibilities are a contractor’s.”
Confirmation from HMRC
HMRC confirmed yesterday to Kingsbridge that the changes to the company size thresholds do indeed mean some firms currently in the scope of Chapter 10 ITEPA 2003 will no longer be in scope.
The IR35 insurer’s Ryan Dawson mainly supports the changes from early next April.
But he’s cautious too.
‘IR35 determinations to pass back to more contractors’
“With the changes to turnover and balance sheet thresholds, more commercial end-clients will fit within the ‘small company’ category.
“That’ll pass the IR35 decision back to more contractors while reducing the number of supply chains impacted by the OPW rules.
“Yet the devil is always in the detail,” he says. “And for that, we need to wait until HMRC updates its Employment Status Manual.
“One detail we do already know, though, was helpfully highlighted in an ICAEW bulletin.
“It’s this — that a company’s size under OPW is determined by reference to its prior financial year and for the duration of a tax year.
“That might sound like a technical detail. But it’s key, as it means these changes won’t impact limited company contractors until the start of 2026-27.”
‘Impact of inflation’
The Institute of Chartered Accountants in England and Wales (ICAEW) doesn’t just issue helpful bulletins.
The UK’s largest accountancy body has long-called HMRC to update its company size thresholds.
Both the small company turnover and balance sheet uplifts (to £15m and £7.5m respectively), are therefore thanks to the institute.
“It has been some time since these categories have been reviewed,” Kate Beeston, ICAEW’s technical manager said yesterday in a statement to Kingsbridge.
“We supported an increase that takes into account the impact of inflation, and the relevant cost-benefit of a change in thresholds.”
‘Mayhem’
Asked about the official estimate of 14,000 companies moving from ‘medium’ to ‘small,’ Beeston cited a memorandum on the new rules.
The ICAEW also pointed Kingsbridge’s representatives to the government’s full impact assessment of the new thresholds, here.
But top chartered accountant David Kirk says that to be accurate, the impact assessment of company size thresholds should warn of chaos.
“This has the potential cause to mayhem,” the founder of David Kirk & Co cautioned in a statement to Kingsbridge.
“Many client companies are going to be designated ‘small’ that weren’t previously because of these [two] new thresholds, even though their size won’t have changed at all.
“Their contracts won’t change, however. And nor will the employment status of the people working [on their behalf].”
‘Inside IR35 contractors should ask agencies and clients for an extra 15%’
So if “inside IR35” at a mid-sized firm already deducting tax and employee NI at source, a PSC will soon need to deduct both themselves.
Kirk continued: “Furthermore, these contractors will need to find the money to pay the employer’s NI at 15% of most of the contract value.
“Contractors could ask clients or agencies for this extra 15%, as under these changes both clients and agencies will be spared this imposition.”
‘Complicated off-payroll working rules to hit fewer businesses’
Status adviser Charlie Hemsworth is sympathetic to Kirk’s concerns.
On balance though, the adviser told Kingsbridge that PSCs will be keen to relinquish the role of IR35 status decision-maker.
“Fourteen thousand businesses will move from ‘medium’ to ‘small’ under the new thresholds,” began Hemsworth of Bauer & Cottrell.
“Not a huge number. And it’s hard to say how many of these actually engage PSCs or how many PSCs may now fall back under Chapter 8.”
“Nonetheless, it means fewer businesses having to deal with the burdensome and complicated OPW rules.
“And of course, it also means more contractors regaining control over their own IR35 status. What’s not to like?”
‘A burdensome talent hurdle will fall when small company size thresholds go up’
Kingsbridge’s Mr Dawson, clearly a sticker for legislative detail, broadly agrees.
He says: “Changes to the current small company thresholds — found within the Companies Act 2006 at section 383, will remove a burdensome hurdle to talent.
“Yet where the OPW rules may not apply in the future, providing clarity to contractors should be a priority, as they may still be responsible under Chapter 8; ‘old’ IR35. HMRC has provided a template for this at ESM10011B.”
Kingsbridge is now advising contractors that if end-clients aren’t proactive in making company size clear from the outset (or if a contractor is on-contract and size seems to change), ESM10011A outlines making a formal size request.
‘Choose good habits over a 45-day request to detail company size’
“The client has 45 days from the date of receiving the request to confirm its company size,” explains Kingsbridge’s Dawson, adding:
“To provide clarity for all affected parties, we’ll be encouraging supply chains to get into good habits.
“What do ‘good habits’ look like? Well, it’s about regularly being proactive about determining whether the off-payroll working rules apply and then communicating the position down the chain.
“These are good habits to adopt right now — even if the new ‘small company thresholds’ won’t apply until at least April 2026 — as HMRC has told us.”
Small company thresholds to meet (and therefore be OPW-exempt) from 2026-27
Mr Dawson summed up: “As a final reminder for that new tax year, the new small company thresholds or ‘tests’ are as follows.
“A company will be considered ‘small’ from April 6th 2026 if just two of the three thresholds are met:
“Threshold one — turnover of not more than £15million; up from the current £10.2million.
“Threshold two — balance sheet total of not more than £7.5million; up from the current £5.1million.
“Threshold three — a monthly average number of employees of 50; that’s the same as now; 2025-26, and won’t change in 2026-27.”
‘Finally, don’t settle for less than a specialist when it comes to IR35’
An advocate of a ‘belt and braces’ approach to OPW compliance across the board, the Kingsbridge IR35 project manager concluded: “As always with IR35, preparing for a change is key, and these new small company size thresholds are no exception. Speak to a specialist who can carefully guide you through your specific circumstances.”
How Kingsbridge can help
Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.
Kingsbridge also offers 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.
