Changes to the UK’s off-payroll working rules, coming into force this month, will reduce costly compliance obligations for scaling businesses, but contractors who fail to adjust their rates could face financial pitfalls, Business Matters reports.
From April 2026, amendments to IR35 tax legislation redraw the lines of responsibility between businesses and the freelancers they hire. For thousands of companies that have previously shouldered the burden of determining whether contractors fall inside or outside the off-payroll rules, the changes bring welcome relief. For contractors, the picture is more complex.
IR35 is designed to ensure that individuals working through intermediaries, such as personal service companies, but whose engagements resemble traditional employment, pay broadly equivalent income tax and National Insurance. Since 2021, HMRC has reclassified more than 130,000 workers as deemed employees for tax purposes, highlighting the legislation’s wide impact on the contracting workforce.
Under the current regime, medium and large companies are responsible for assessing a contractor’s IR35 status. Small companies are exempt, leaving the contractor to make the determination through their personal service company. The April reforms raise the thresholds for what counts as a “small” company, meaning many more businesses will now fall beneath that threshold and be freed from compliance duties.
Previously, a company qualified as small if it met two of three criteria: annual turnover of no more than £10.2 million, a balance sheet total under £5.1 million, and fewer than 50 employees. From this month, the turnover ceiling rises to £15 million and the balance sheet limit to £7.5 million, while the employee threshold remains at 50. Many businesses that were previously classified as medium-sized will now be considered small, shifting responsibility for issuing a Status Determination Statement—the document declaring whether a contractor sits inside or outside IR35—back to the freelancer.
Vincent Huguet, chief executive and co-founder of Malt, the European freelance talent platform, welcomed the reforms but urged caution. “The shift in thresholds helps move responsibility away from hiring managers, allowing them to focus on projects rather than tax compliance,” he said. He warned that neither companies nor freelancers should become complacent.
The government is also introducing a PAYE set-off mechanism to address historical concerns about double taxation. Previously, HMRC could recover the full PAYE and National Insurance bill from clients if IR35 was misapplied, without accounting for tax already paid by the contractor. The new system offsets those prior payments, reducing the risk of overpayment.
For freelancers, the reforms highlight the importance of adjusting rates. Employer National Insurance Contributions have risen from 13.8% to 15%, while the annual payment threshold fell from £9,100 to £5,000. These costs, deducted before a contractor’s pay, must now be fully accounted for when setting rates.
Huguet’s advice to contractors is clear: “Get your pricing right.” Companies, particularly those now classified as small, can benefit from easier access to freelance talent—but only if both parties understand the new obligations and costs.
The reforms represent a major shift in the UK freelance market, aiming to balance tax compliance with flexibility, while highlighting the financial responsibility now resting on the shoulders of contractors.
