UK IR35 in 2026 — More Firms Exempt, but New Umbrella-Company Liability Cuts the Other Way

Two things, effective 6 April 2026. First, the "small company" thresholds rose — turnover from GBP 10.2M to GBP 15M and balance-sheet total from GBP 5.1M to GBP 7.5M (headcount stays at 50) — so more clients become exempt from the off-payroll rules and status determination reverts to contractors. Second, a separate reform makes agencies and end clients potentially liable for PAYE that an umbrella company fails to pay.

The higher thresholds apply from 6 April 2026, but company size for IR35 is assessed by reference to the previous financial year (with a two-year consistency rule). So for most clients the practical effect — dropping out of the off-payroll rules — lands from April 2027 at the earliest. You should not change how you treat a contractor the moment the thresholds rise.

It is UK tax law targeting "disguised employment": contractors who work through their own limited company (a personal service company) but function much like employees. Where it applies, employment taxes (PAYE and National Insurance) are due as if the person were employed. Since April 2021, medium and large clients determine status and carry the risk; small clients are exempt and the contractor’s company self-assesses.

From 6 April 2026, where workers are supplied through an umbrella company, HMRC can impose joint and several liability for PAYE income tax and National Insurance on another party in the chain if the umbrella fails to operate PAYE correctly. Liability sits first with the recruitment agency above the umbrella, and where there is no agency, with the end client — and HMRC can pursue the full shortfall irrespective of fault.

The threshold rise loosens IR35 for more mid-sized clients, moving status determination and liability back to contractors — a reduction in burden. But the umbrella reform adds a new liability for anyone using umbrellas in their supply chain. So the changes rebalance where the risk sits rather than simply reducing it: lighter for some direct-PSC engagers, heavier for umbrella users.

Confirm whether and when you genuinely qualify as "small" (checking the relevant prior year) before changing how you treat contractors; keep issuing status determinations until you do. Audit every umbrella in your supply chain for PAYE compliance, since you may now be liable for their failures, and build compliance checks and indemnities into agreements with agencies and umbrellas.