The April 2026 Small-Company Threshold Shift Explained

What changed on 6 April 2026

The off-payroll working rules in Chapter 10 only apply where the end client is medium or large. Small clients are carved out, leaving the contractor's own company to assess status under the original Chapter 8 rules. The carve-out borrows the company size definitions from the Companies Act, and when company law raised its monetary size limits, the tax boundary moved with it. From 6 April 2026 the relevant figures are £15 million annual turnover and a £7.5 million balance sheet total, up from £10.2 million and £5.1 million. The employee headcount limit stays at 50.

A company is small if it meets at least two of the three conditions. Raising two of the three limits by roughly half pulled a sizeable band of businesses back under the small umbrella: government figures put the number of engagers reclassified from medium to small at around 14,000. Every contractor supplying those businesses through a personal service company is affected, because responsibility for the IR35 decision moves from the client back to the PSC. The wider regime those decisions sit within is set out in the complete IR35 guide for 2026/27.

The new size tests in detail

For a company or LLP, the test applies the Companies Act small-company conditions, as updated by the regulations that raised the monetary thresholds. The conditions from 6 April 2026 are:

• Annual turnover of not more than £15 million.
• Balance sheet total, meaning gross assets, of not more than £7.5 million.
• Not more than 50 employees, a limit that did not change.

Meeting any two of the three is enough. Company law also builds in a two-year rule: a company generally changes size category only after sitting on the other side of the limits for two consecutive financial years, which smooths out businesses hovering near a threshold. Unincorporated clients, such as partnerships without corporate members, are measured on turnover alone against the same £15 million figure. The underlying definitions sit in the Companies Act 2006 and the tax rules cross-refer to them rather than restating them.

Alignment is the point of the design. A finance team should reach the same answer for its statutory accounts exemptions and for its off-payroll obligations, rather than running two parallel size calculations that can drift apart.

Why this matters: determination and liability move together

Under Chapter 10, a medium or large client must take reasonable care over a status determination statement for each engagement, and the fee-payer deducts PAYE and National Insurance where the engagement is inside. The client and fee-payer carry the tax risk. Under Chapter 8, all of that lands on the contractor's company instead: the PSC decides the status, performs the deemed payment calculation if the engagement is inside, and answers to HMRC if the decision was wrong.

The shift is therefore not administrative trivia. A contractor whose client became small on 6 April 2026 went from receiving a determination to making one, and from holding no direct liability to holding all of it. HMRC's assessment windows of four years ordinarily, six for carelessness and twenty for deliberate behaviour apply to those self-made decisions, with penalties of nothing where reasonable care was taken rising to 30% of the lost tax for carelessness. The evidence standard a PSC should work to is the same one tribunals apply, covered in the status tests guide.

What PSC-led determination means in practice

Taking the decision back means doing the work the client's compliance team used to do. For each engagement with a small client, the PSC should hold a file showing the status conclusion and the reasoning behind it. In practice that file contains four things:

• The contract, reviewed against the case law factors: personal service and any substitution right, control over how the work is done, mutuality of obligation, and the in-business-on-own-account indicators.
• A record of the actual working practices, because tribunals weigh reality over drafting.
• A CEST output or an independent assessment, noting that HMRC stands behind an accurate CEST result but the tool can return undetermined and does not replace reasonable care.
• Evidence of business risk: insurance, multiple clients where they exist, own equipment, and correction of defective work at the company's cost.

Where the conclusion is inside, the PSC must run the deemed employment payment calculation at the year end and account for the PAYE and National Insurance itself, keeping the 5% expenses allowance that survives only under Chapter 8. Where the conclusion is outside, the company trades normally, paying corporation tax at 25% or 19% with marginal relief between £50,000 and £250,000, and the contractor draws salary and dividends at the 2026/27 dividend rates of 10.75%, 35.75% and 39.35% above the £500 allowance. A specialist accountant can build the determination file and run either calculation, and an independent contract review before signature is the cheapest point at which to fix a weak engagement.

Timing: when the change bites for a given client

The 6 April 2026 date is when the new thresholds took effect for the off-payroll rules, but a particular client's reclassification depends on its own accounting periods. Size for a tax year is judged by reference to the client's last financial year ending before the start of that tax year, and the Companies Act two-year rule means a company normally needs two consecutive qualifying years before its category changes.

The practical consequence is staggering. Two clients with identical numbers can switch to contractor-led assessment in different tax years because their year ends fall either side of a date. Some engagers that now sit under the new limits will not count as small for off-payroll purposes until a later tax year, and they remain obliged to issue determinations until then. Contractors should not assume the client's duty fell away in April 2026 just because its turnover is under £15 million today. Confirm the position for each engagement and each tax year rather than applying the headline date.

How to confirm whether your client is small

The legislation anticipates exactly this uncertainty. A worker, or the agency contracting with the client, has a statutory right to ask the client to confirm its size for a tax year, and the client must answer. The request and the response are worth keeping in writing, because a written confirmation anchors who held responsibility if HMRC later examines the engagement.

Beyond the formal route, filed accounts at Companies House show turnover, balance sheet totals and average employee numbers for the relevant financial years, and a client that has stopped issuing status determination statements has usually concluded it is small, though silence is not confirmation. Where the answer is genuinely unclear, behave as though the decision is yours: a PSC that documents its own determination loses nothing if the client turns out to be responsible after all, while a PSC that assumed the client was handling it has no file to fall back on.

Group and connected company rules

Size is not always measured on the engaging entity alone. Where the client is a parent of a group, the test applies to the group, so a modest subsidiary of a large parent does not count as small even if its own numbers sit comfortably under the limits. Connected and associated company rules pull related entities together in the same way, and joint ventures and companies under common control need the same aggregate analysis.

This is the most common trap in the 2026 change. A contractor who deals day to day with a small-looking entity may actually be engaged by a member of a group that fails the test in aggregate, in which case Chapter 10 still applies and the client still owes an SDS. The statutory information right covers this situation too: ask the engaging entity to confirm its size for the tax year, and its answer must reflect the group position. HMRC's operational guidance on the regime, including the size rules, is collected under its off-payroll working guidance.

Preparing for the switch

For contractors whose clients crossed the line, the to-do list is short but none of it is optional. Establish the client's size in writing for the current tax year. If the client is small, produce and file your own status determination with evidence before relying on it. Revisit the determination when the contract renews or the working practices change, since status attaches to each engagement rather than to the contractor. And if the engagement is inside, plan the deemed payment calculation into the company year end rather than discovering it at filing time.

Engagements that straddle the change need particular care: a role the client assessed as outside in 2025/26 does not become safer just because the assessment duty moved, and HMRC can test the PSC's own conclusion for every year it was responsible. Where a client's past determination looks doubtful or HMRC has already asked questions, specialist support with an HMRC IR35 enquiry is worth engaging before responding.