IR35 small company thresholds for 2026/27: what changed and who it affects

In short: a private-sector client is "small" if it meets at least two of: turnover up to £15m, balance sheet total up to £7.5m, and 50 or fewer employees. If your client is small, the off-payroll rules don't apply — and your own limited company decides your IR35 status and carries the tax risk.

Why the size of your client matters

IR35 has two sets of rules. Since April 2021, when a contractor works through a limited company for a medium or large private-sector client (or any public sector body), the client decides whether IR35 applies and must give a Status Determination Statement. These are the "off-payroll working" rules in Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003.

When the client is small, the original IR35 rules in Chapter 8 apply instead. Your limited company assesses its own status, and if it gets it wrong, HMRC pursues your company for the unpaid tax, National Insurance, interest and penalties. Who decides your IR35 status explains both regimes.

The new thresholds

Test	Previous limit	New limit
Annual turnover	£10.2m	£15m
Balance sheet total	£5.1m	£7.5m
Average employees	50	50 (unchanged)

A company is small if it meets two or more of the three conditions. The thresholds follow the Companies Act size limits, which were raised for financial years beginning on or after 6 April 2025.

When the change takes effect

A client's size for a tax year is based on accounts it has already had to file before that tax year begins. So although the new limits apply to financial years starting from 6 April 2025, most clients will first see the effect in the 2026/27 tax year (from 6 April 2026), and for some year-ends it will be later. Official estimates suggest around 14,000 companies move from medium to small.

There are extra rules for groups (a parent company's size includes its subsidiaries) and for clients that aren't companies, such as partnerships, so if your client is near the limits, ask them directly.

What to do if your client has become small

1. Ask the client or agency to confirm its size in writing. A client that becomes small should tell you that the off-payroll rules no longer apply.
2. Expect not to receive an SDS. The decision is now your company's to make.
3. Assess the engagement yourself — the contract and your working practices — and keep a record. A documented review is good evidence you took reasonable care.
4. Negotiate weak clauses before you sign. Substitution, control and open-ended "additional services" wording matter most. See our IR35 clauses checklist.
5. Make sure reality matches the paper. Tribunals look past contract terms that don't reflect how you actually work.

What doesn't change

The test for whether an engagement is "inside" or "outside" IR35 is exactly the same under both regimes: would you be an employee if you contracted directly with the client? Only who decides — and who pays if it's wrong — changes.

Sources: Companies Act 2006 size thresholds as amended for financial years beginning on or after 6 April 2025; HMRC guidance on off-payroll working for clients. This guide is general information, not tax advice.