How do changing thresholds affect the application of IR35 for small client companies?

As HMRC continue to review and update regulations, it is common for thresholds to change to ensure that administrative tasks and financial responsibilities remain appropriate for businesses of different sizes.

Upcoming changes to thresholds will see more end-client companies be qualified as small and thus fall outside the scope of the IR35 Off-Payroll Working (OPW) regime.

It is important to understand the impact this may have on your business and understand what steps you need to take to prepare.

What is changing with IR35 thresholds?

From 6 April 2026, the turnover threshold for a small company will rise from £10.2 million to £15 million and the balance sheet total from £5.1 million to £7.5 million.

The employee threshold will remain at an average of 50 per month and meeting any two of these three criteria will classify a company as small.

With these changing thresholds, some companies that previously had to consider OPW rules will no longer have to do so.

For many clients, the company engaging the contractor, this means that they will no longer need to determine the contractor’s IR35 status or make tax deductions at source.

At this point, the responsibility for determining whether an engagement is inside or outside IR35 will be placed on the contractor, the one performing the work, and their company, the PSC through which the individual contractor supplies services.

What preparations are needed for these changes?

Company size can have a range of implications so it is wise to determine exactly how your company will be classified.

Beyond this, end-clients should communicate their company size to agencies and contractors when seeking work and before any work actually commences.

This enables all parties to apply the correct IR35 procedures from the outset and avoid any disputes over who is responsible for deductions and liabilities.

You should also endeavour to check that there is consistency across the supply chain.

Being vigilant about the changing responsibilities reduces the risk of HMRC challenges now and in the future.

When this is improperly handled, you could find yourself at risk of improper tax treatment which could result in financial penalties.

Some contractors may be pleased with the news if they seek to operate outside of the obligations imposed by IR35.

Our expert team can help you understand the position of your company and adjust your obligations accordingly.

To ensure that you stay compliant with shifting responsibilities, speak to our team today.