14,000 companies are about to lose IR35 responsibility.
Or are they?
The threshold changes announced for April 2026 are creating real confusion. If you have heard that small company exemptions are expanding, you have heard correctly. If you have assumed this means your organisation is suddenly exempt, you may be wrong. And if you have not considered how this affects your suppliers, you are missing a critical piece of the puzzle.
Here is what finance leaders actually need to know.
The New Thresholds Explained
Under the off-payroll working rules (commonly called IR35), medium and large companies must determine the employment status of contractors who work through personal service companies (PSCs). Small companies are exempt - the contractor's own company makes the determination instead.
From April 2026, the definition of "small company" is changing. To qualify as small, a company must meet two of three criteria:
Current thresholds (until April 2026):
Annual turnover not more than GBP 10.2 million
Balance sheet total not more than GBP 5.1 million
Not more than 50 employees
New thresholds (from April 2026):
Annual turnover not more than GBP 15 million
Balance sheet total not more than GBP 7.5 million
Not more than 50 employees
The turnover threshold increases by nearly 50%. This means approximately 14,000 companies currently classified as "medium" will become "small" - and exempt from the off-payroll rules.
The Timeline Confusion
Here is where it gets complicated.
The threshold changes are announced for April 2026, but the effective date for most companies is April 2027.
Why the gap?
Company size is determined by the previous accounting period. If your accounting year ends on 31 March 2026, you assess your size based on your 2025-26 accounts. Those accounts will use the old thresholds.
The earliest accounting period where the new thresholds apply is one ending on or after 30 April 2026. This means the earliest tax year where a mid-sized company could become exempt is 6 April 2027.
In practical terms: Do not change your IR35 processes yet. For the 2026-27 tax year, you should continue operating as you do now. The exemption window opens in 2027-28.
What Small Company Status Actually Means
If your organisation qualifies as "small" under the new thresholds, the responsibility for status determination shifts to the contractor's personal service company (PSC).
This means:
You do not need to issue Status Determination Statements
You do not need to operate PAYE if the contractor determines they are inside IR35
The compliance obligation sits with the PSC, not you
However, this does not mean you are free from all contractor-related tax risk.
The new Joint and Several Liability rules launching in April 2026 apply regardless of company size. If contractors in your supply chain are paid through non-compliant umbrella companies, that liability can still reach you.
Being exempt from IR35 determination is not the same as being exempt from workforce tax risk.
The Supplier Question
Even if your organisation is clearly above the new thresholds and will remain subject to off-payroll rules, the threshold changes still affect you.
Consider your supply chain.
When you engage a supplier who provides services involving contractor labour, the question of who determines IR35 status depends on the supplier's size, not yours. If your supplier becomes "small" under the new thresholds:
They will no longer issue Status Determination Statements for their contractors
Those contractors' PSCs will make their own determinations
You have less visibility into how those status decisions are being made
For large organisations with extensive supplier networks, this creates a new blind spot. Workers who were previously subject to formal status determination processes may now be operating under self-assessed arrangements.
The risk has not disappeared. It has moved.
Determining Your Status
To assess whether your organisation will be affected by the threshold changes, answer these questions:
What is your annual turnover? If over GBP 15 million, you remain subject to off-payroll rules regardless of other criteria.
What is your balance sheet total? If over GBP 7.5 million, you need to meet only the employee count threshold to qualify as small.
How many employees do you have? The 50-employee threshold has not changed.
When does your accounting year end? This determines when the new thresholds first apply to your organisation.
Remember: you need to meet two of three criteria to qualify as small. Meeting just one is not sufficient.
Assessing Your Supply Chain
For suppliers where contractor labour is involved:
Identify suppliers near the threshold boundaries - Companies with turnover between GBP 10-15 million or balance sheets between GBP 5-7.5 million may be reclassified
Ask suppliers directly - Will they be classified as small under the new thresholds? When does this take effect for them?
Review contractual arrangements - Do your contracts address scenarios where suppliers' IR35 obligations change?
Consider visibility requirements - Even if suppliers become exempt from formal determination processes, you may want contractual visibility into how they manage contractor status
Key Takeaways
The thresholds are changing - Turnover threshold rises from GBP 10.2m to GBP 15m, balance sheet from GBP 5.1m to GBP 7.5m
The timing is delayed - Changes are announced for April 2026 but most companies will not see the effect until April 2027
Small company exemption is limited - It removes IR35 determination responsibility, not all workforce tax risk
Supply chain visibility matters - Even if you are not reclassified, your suppliers may be, changing your risk profile
Do not change processes prematurely - Continue current IR35 practices through the 2026-27 tax year
Review your organisation against the new criteria, then map which of your suppliers might be affected by reclassification. The question is not just whether you are affected - it is whether your supply chain is.
