Off-Payroll Working Small Company Thresholds

From 6 April 2026, the financial thresholds that decide whether a business counts as a “small company” for off-payroll working purposes have changed. It’s a quiet but significant shift, and it will move around 14,000 UK businesses out of the IR35 reporting regime they’re currently sitting in.

If you engage contractors through their own personal service company, this matters. At Pecunia Pro we want clients to know where they’ll stand under the new thresholds well before the practical impact hits in 2027.

A quick refresher on the rules

Since April 2021, medium and large private sector clients have been responsible for deciding whether a contractor working through their own limited company is, in substance, an employee for tax purposes. If they decide the engagement falls inside IR35, the client (or the fee-payer in the chain) has to deduct PAYE and National Insurance from the contractor’s fee, as if they were on payroll.

Small companies are exempt from this responsibility. Where the end client is small, the contractor’s own company decides the IR35 status, and any PAYE consequences sit with them, not with the client. The definition of “small” has, until now, broadly mirrored the Companies Act test.

What’s changing on 6 April 2026

The thresholds that define a small company are going up. From 6 April 2026:

• Turnover increases from £10.2 million to £15 million.
• Balance sheet total increases from £5.1 million to £7.5 million.
• The average employee headcount threshold remains at 50.

A company qualifies as small if it meets any two of those three thresholds. That means a meaningful group of businesses that have been treated as medium-sized for IR35 purposes since 2021 will be reclassified as small from 2026/27.

When does this actually take effect for IR35?

This is the bit that catches people out. Off-payroll working uses the prior financial year to decide your size status for the current tax year. So even though the new thresholds apply from 6 April 2026, most businesses won’t feel the practical effect on their IR35 obligations until April 2027, because the test for 2026/27 is based on 2024/25 accounts.

There is, in other words, a window of around twelve months where you can look at your numbers calmly and work out exactly what your status will be when the rules bite.

What this means in practice

Three groups of business owners need to take a close look.

Owners of medium-sized businesses sitting near the old thresholds. Under the new rules, you may move out of the off-payroll regime entirely. That removes a real compliance burden, but it also means the contractors you engage will be responsible for their own IR35 status, and your existing status determination statements will no longer be required.

Owners of businesses that were comfortably medium-sized. You will almost certainly still be in scope. The headline change doesn’t affect you, but it does affect the contractor market you compete in, because some clients will now be small and able to engage PSCs more flexibly.

Owners of businesses currently classified as small. Nothing changes for you in the short term. However, if you’re growing fast, the higher thresholds give you more headroom before the off-payroll responsibilities apply.

What we’d recommend doing in 2026

A short, structured review now will save a much messier conversation in 2027:

1. Pull your 2024/25 statutory accounts and check your turnover, balance sheet total and average employee headcount against the new thresholds.
2. If you move from medium to small, identify all current engagements with personal service companies and plan how you’ll wind down your IR35 status determination process.
3. Brief your finance team and any external accountants so the change is reflected in next year’s contractor onboarding paperwork.
4. Keep an eye on growth. If you sit just under the new thresholds, a strong trading year could put you back into scope quite quickly.

A wider warning

IR35 remains one of the most actively enforced areas of UK tax. Even where you fall out of the off-payroll regime as a client, the underlying IR35 question doesn’t disappear, it simply moves back to the contractor. Where your relationship with a contractor looks more like employment than self-employment, HMRC scrutiny continues regardless of who is responsible for assessing status.

That means clear written contracts, clean working practices, and an honest read on whether your contractors are really running their own businesses still matter, even as the thresholds shift.

How Pecunia Pro can help

For more than ten years we’ve helped UK SMEs keep their payroll and contractor arrangements compliant, accurate and easy to defend. The new thresholds are a chance to tidy up your position, not a reason to take your eye off it.

Want to know exactly where you’ll stand under the new off-payroll thresholds from 2026/27? Call us on 020 8143 1529 or email info@pecuniapro.co.uk for a clear, plain-English review of how the rules will affect your business and your contractors.