Changes to non-payroll work rules that come into effect this month will relieve expanding businesses of costly compliance obligations. Still, contractors who fail to adjust their rates risk getting caught, writes Daily Sparkz.
From this month, a series of changes to the UK’s IR35 tax code will redefine the boundaries of responsibility between companies and the freelancers they engage. The changes promise welcome relief for thousands of businesses that have previously shouldered the burden of determining whether or not their contractors fall within the off-payroll rules. For freelancers, however, the picture is a little more complicated.
IR35 is essentially the government’s mechanism to ensure that people who work through intermediaries such as staffing companies, but whose obligations are similar to those of employees, pay a roughly equal amount of income tax and national insurance. According to HMRC, the framework has already moved more than 130,000 workers into deemed employment tax status since 2021 – a figure that highlights both its reach and ongoing impact on the UK’s contract workforce.
Under the current regime, much of the responsibility for determining a contractor’s IR35 status lies with the hiring organization – provided that organization is considered medium or large under company law. Smaller businesses were exempt, with responsibility instead falling to the contractor’s personal service company. The April 2026 changes significantly raise the bar for “small” businesses, meaning many more businesses will now fall below this threshold and be exempt from compliance obligations.
A wider net for small business exemptions
Previously, a company was considered small if it met at least two of three criteria: annual turnover of no more than 10.2 million pounds, total assets of no more than 5.1 million pounds and no more than 50 employees. From April 2026, the turnover cap will increase to £15m and the balance sheet cap will increase to £7.5m, while headcount will remain unchanged at 50 employees. The result is that a significant number of businesses previously classed as medium-sized will now be treated as small and the obligation to issue a status determination statement – the legal document that determines whether a contractor is operating inside or outside IR35 – will pass to the contractor.
Vincent Huguet, managing director and co-founder of Malt, the European platform for freelance talent, welcomes the reforms but urges caution. Shifting the thresholds, he believes, helps shift the responsibility from hiring managers, allowing them to focus on when and what they need, rather than worrying about the tax implications of each engagement. Still, he warns that neither companies nor freelancers should become complacent.
The end of double taxation?
Alongside the threshold changes, the government is introducing a PAYE offset mechanism, which aims to address one of the more contentious aspects of the existing rules. Previously, if a customer did not apply IR35 correctly, HMRC could claim the entire PAYE and National Insurance bills from the assumed employer, without taking into account the tax already paid to the contractor through their personal service business. The new mechanism allows HMRC to offset these previous payments when calculating any outstanding liabilities.
Huguet describes this as an important step toward eliminating double taxation, noting that it eliminates the risk of a freelancer ending up paying more than their fair share and properly records historical tax records.
Pricing: The Freelancer’s Blind Spot
However, for contractors, the real downside may lie in the details of their own price lists. With a greater share of compliance responsibility now falling on them, freelancers need to ensure their pricing adequately reflects the full cost of the engagement. Last year’s increase in employers’ national insurance contributions from 13.8 per cent to 15 per cent, combined with the reduction in the payment threshold from £9,100 to £5,000 a year, has already made hiring more expensive. Because the employer’s NIC is deducted from the contract rate before a contractor’s salary is calculated, this cost is built directly into the negotiations – regardless of whether the contractor is considered inside or outside IR35.
Huguet’s message to freelancers is blunt: get pricing right. Those who fail to take these evolving obligations into account risk undervaluing their services at a time when the regulatory landscape requires greater ownership of their tax affairs. For companies, particularly those newly classified as small, the changes offer a chance to hire freelance talent with less bureaucracy – but only if both sides of the agreement understand what is now expected of them.
