IR35: The taxman just made the ‘small company’ changes timeline clearer

Following my earlier article on the new company size thresholds and IR35 off-payroll rules, HMRC has provided further guidance to put the commencement date beyond doubt

I will come to the ‘why’ aspect of the following facts from the HMRC guidance, writes chartered accountant Matt Fryer, managing director of Brookson, but in short:

• the company size thresholds took effect on April 6th 2025;
• the earliest accounting period of mid-sized companies likely to be positively affected by the changes for IR35/OPW purposes is April 30th 2026;
• Allowing for a few assumptions, such mid-sized companies will first become ‘small’ and therefore outside the OPW rules  (in which case the IR35 status decision reverts to the limited company contractor) on April 6th 2027.

IR35 off-payroll rules: what is the small company exemption?

First, a quick recap of the small company exemption for IR35 off-payroll purposes.

Currently, HMRC exempts end-users that qualify as ‘small companies’ from the responsibility of determining the IR35 employment status of the limited company workers they engage.

The qualifying criteria for the small company regime are detailed in The Companies Act 2006.

Essentially, companies that exceed the ‘small company’ criteria (and are therefore deemed to be “medium” in size – also known as mid-sized, or “large” in size) need to assess whether the limited company workers they engage are captured by IR35 or not.

What tests to be a small company have changed?

On April 6th 2025, two of the small company thresholds that determine whether a company will be deemed to be medium or large (and so will not benefit from the ‘small company IR35 exemption’) have increased as follows:

• Turnover of more than £15million (before April 6th 2025 this threshold was £10.2 million).
• Balance sheet total of more than £7.5 million (before April 6th 2025 threshold was £5.1 million).

The third criterion – a monthly average of 50 employees – is unchanged for 2025/26. 

Engagers need to note that meeting TWO of the above THREE conditions will lose them their 'small company' status (i.e. they'd become a medium-sized company).

Does the IR35 small company exemption change affect you?

It is important to note that how an organisation (in receipt of contractors’ services) establish whether they meet the criteria of being a ‘small company’ or not hasn’t changed.

The only changes relate to the size of the thresholds.

Three time-orientated considerations for companies hiring contractors

Therefore, to consider if the small company thresholds apply, end-users need to make the following three time-orientated considerations:

1. The last financial year for which the period for filing accounts and reports ended before the beginning of the tax year concerned (to determine whether the three tests are met). 
2. The company still needs to meet the relevant conditions to be considered small or medium-sized for two consecutive financial years. 
3. Transitional provisions can also apply if a company’s first accounting period begins on or after April 6th 2025. In effect, it treats the company as having met the relevant size conditions in a previous year if the new thresholds were used to determine its size.

For example…

In its new guidance, issued on April 8th 2025, HMRC provides the following example – “Example A.”

But please note, the emboldening below is mine for emphasis around the timing aspects of the changes because, originally, April 6th 2026 was mooted by HMRC as the first date that companies would be OPW rule-exempt (but it’s actually April 6th 2027).

My analysis of HMRC’s ‘Example A’

Company A is a medium-sized company and has applied the off-payroll rules since introduction. It has a financial year end of 30 June. The period for filing its accounts will end 9 months later, on 31 March the following year. 

For the financial year beginning 1 July 2024 and ending 30 June 2025, Company A used the pre-6 April 2025 thresholds because the financial year did not begin on or after 6 April 2025. Applying these thresholds, it was a medium-sized company. 

For the following financial year beginning 1 July 2025 and ending 30 June 2026 Company A will use the increased post 6 April 2025 thresholds because it is the first financial year beginning on or after 6th April 2025. Under the increased thresholds Company A is classified as a small-sized company. 

Company A looks back under the transitional provisions to the previous financial year for which it was medium under the pre-6 April 2025 thresholds. Now, under the increased thresholds, Company A is small-sized for the financial year 1 July 2024 to 30 June 2025. 

Company A is therefore classified as being small for two consecutive financial years. The second financial year ended on 30 June 2026. The period for filing accounts for that financial period ends on 31 March 2027. The tax year following this is the 2027/28 tax year where Company A will now be outside the scope of the off-payroll rules. 

Timeline for IR35 small company changes: three key dates

Based on the above example, it seems that the earliest accounting period of medium-sized companies likely to be positively affected for IR35/OPW purposes (thanks to the increased thresholds) is 30th April 2026, with the filing deadline for that period being 31st January 2027.

So the very earliest tax period where currently mid-sized end-clients will be exempt from the OPW rules is 6th April 2027 onwards (on the assumption that the accounting periods 30th April 2025 and 30th April 2026 meet the thresholds).

IR35 contractor impact of new company size thresholds  

If your client’s company’s turnover/ balance sheet total/ employee numbers are similarly aligned to the thresholds, it would be beneficial for them to annually assess their position to see if the responsibility for assessing their limited company contractors shifts to the limited company workers or not.

Best-practice would be for a client-company to document their company size and notify their limited company contractors accordingly.

IR35 implications for limited company workers currently at 14,000 mid-sized firms (cont.)

And as a limited company contractor, you can formally request this information anyway.

Furthermore for limited company workers at up to 14,000 companies (currently mid-sized who are set to be ‘small’ according to HMRC), be prepared to manage your own IR35 status determination.

We stand by the top tips for limited company contractors we issued in February 2025, notably ‘get clarity….,’ ‘use clarity…’ and ‘be prepared…’ if you’re a contractor who might find yourself in this position in the future.

Hire an IR35 expert, if you're an end-client or contractor…

A final thing that hasn’t changed since this year’s first quarter (when April 2026, not the correct date of April 2027 was floated as the starting gun for these changes), is our recommendation to get support in place if your contracting arrangements look destined to change. Indeed, affected client companies and contractors should strongly consider taking professional advice in this area to ensure that these complex legislative changes don’t catch them out.