IR35 and Off-Payroll Working: What Is Changing for UK Contractors in April 2026

What IR35 is

IR35 is the common name for the legislation aimed at what HMRC calls disguised employment: contractors who supply services through an intermediary, usually a personal service company, but whose day-to-day working arrangements look like employment rather than an independent business.

The consequence is how you are taxed. Inside IR35, the engagement is taxed as employment: income tax and National Insurance are deducted through PAYE. Outside IR35, the company pays corporation tax on its profits and you draw income as a mix of salary and dividends, which usually leaves more in your hand.

Since April 2021, medium and large private sector clients have had to determine status under the off-payroll working rules. Before that, the contractor's own company decided. Moving the decision, and the risk, onto hiring organisations pushed many of them toward blanket inside-IR35 determinations rather than assessing engagements one by one, and a large number of contractors were reclassified as a result.

The small company threshold change

Small clients are exempt from determining IR35 status. When a client qualifies as small, the contractor's own company makes the determination, exactly as it did before 2021. From April 2026 the Companies Act criteria that define a small company are being raised.

A company qualifies as small if it meets at least two of three criteria covering turnover, balance sheet total and employee numbers. The turnover and balance sheet criteria are going up and the employee count is unchanged, so several thousand companies currently classed as medium will be reclassified as small. The exact figures are set in legislation and should be checked against the current Companies Act thresholds rather than an article.

For contractors working with a reclassified client, the practical effect is that your own company regains the determination, and with it both the opportunity and the exposure. You can operate outside IR35 where your working practices genuinely support it, and you carry the consequences if HMRC disagrees.

The action is straightforward: look up your clients' latest filed accounts at Companies House and work out which side of the new criteria they fall on.

Joint and several liability for umbrella companies

New joint and several liability rules take effect from April 2026 and target tax failures in umbrella company supply chains. If an umbrella fails to pay the correct PAYE income tax and National Insurance on a worker's behalf, HMRC can pursue the debt from other parties in the chain.

The liability runs upward: HMRC pursues the umbrella first, then the recruitment agency, then the end client. That gives agencies and clients a direct financial reason to scrutinise the umbrellas they work with.

There is no safe harbour. Thorough due diligence on an umbrella partner does not fully protect an agency or client if that umbrella later defaults. The design is deliberate, so that supply chain participants cannot discharge the risk by ticking a compliance box.

The effect is already visible commercially. Some agencies are trimming their preferred supplier lists, and some clients are favouring direct engagements with contractors' own companies over umbrella arrangements to avoid the exposure.

Is outside IR35 coming back

Two forces point the same way in 2026. More clients qualify as small, so more engagements are determined by the contractor's own company. And joint and several liability makes umbrella arrangements less attractive to agencies and clients, pushing them toward direct company engagements.

That is an opportunity where the working practices genuinely support it: multiple clients, your own equipment, a real right of substitution, and financial risk carried by your business. Statement of work and project-based contracting also sit more comfortably with outside-IR35 determinations than a rolling day-rate seat in a client's team.

It is not a licence to reclassify yourself. HMRC continues to investigate, and status challenges can look back over multiple tax years. HMRC's CEST tool returns an indeterminate result in a meaningful share of borderline cases, so a professional status review remains the safer route where the answer is not obvious.

A contract that says outside IR35 counts for very little if the day-to-day reality looks like employment. The paperwork has to describe what actually happens.

Payrolling of benefits in kind

Mandatory payrolling of most benefits in kind was originally planned for April 2026. HMRC announced on 28 April 2025 that the start date moves to 6 April 2027. Until then, payrolling benefits stays voluntary and most employers continue to report on annual P11D forms after the tax year ends.

Once it is mandatory, tax and National Insurance on benefits such as private medical insurance, company cars and gym membership will be calculated and deducted each pay period rather than accruing as an end-of-year liability.

For contractors inside IR35 who receive benefits from an engager or umbrella, the taxable value will appear on the payslip and reduce take-home pay in real time instead of arriving as a separate bill later. The total tax should not change, only when it is deducted.

Employers and umbrellas that want to move early can already opt in. If yours has not said how it is handling the transition, it is a reasonable thing to ask.

Your IR35 action plan

Several changes land at once, so work through them before the tax year starts rather than after the first invoice.

• Check each client's latest filed accounts at Companies House against the new small company criteria.
• Establish who determines your status for each engagement from April 2026, and whether that has changed.
• Review contracts against actual working practices: substitution, control over how and when you work, and financial risk.
• Commission a professional status review for any engagement you intend to treat as outside IR35.
• If you work through an umbrella, ask for evidence of its PAYE compliance and check whether your agency has reviewed its supplier list.
• Keep evidence of genuine business activity: multiple clients, your own equipment, training, insurance and clean books.

Common questions