IR35 rule change: You’re not out of the woods yet. Small print delays relief for UK freelancers
Thousands of UK freelancers and contractors hoping for an end to client-led IR35 assessments face a significant delay, despite recent changes to company size thresholds.
An update to the government’s Employment Status Manual has revealed that the eagerly anticipated relaxation of off-payroll working rules won’t happen overnight, potentially leaving many in limbo until the 2027/28 tax year at the earliest.
From April 2025, increases to two of the three Companies Act thresholds mean more businesses will now qualify as ‘small’. A company is now considered medium if its turnover exceeds £15 million or its balance sheet total is over £7.5 million, while the 50-employee limit remains unchanged. This reclassification is expected to see around 14,000 businesses shedding their responsibility for determining the IR35 status of the contractors they engage. This, in turn, would allow those contractors to once again determine their own tax status.
However, the updated Employment Status Manual, released on 8th April 2025, contains details that will dampen any enthusiasm. The off-payroll working rules rely on fully completed financial years to assess company size. This means any change in a company’s status will only take effect in the subsequent tax year.
Seb Maley, CEO of contractor insurer Qdos, had this to say about the latest developments: “The redrawing of off-payroll boundaries, which will relieve around 14,000 businesses of their obligations, is undoubtedly a positive step for both businesses and the contractors they work with.”
“However,” he cautioned, “the small print makes it clear that this isn’t an immediate change. Many businesses, and therefore the contractors they engage, will need to wait until April 2028 at the earliest to see the benefits. For these firms, it means at least another two years of navigating the off-payroll rules, even if they now meet the definition of a ‘small’ company. This delay will understandably be a source of frustration.”
What does this mean for UK freelancers and contractors?
Don’t assume immediate change. If you work with a client that you believe will now be classified as ‘small’, you won’t automatically revert to determining your own IR35 status.
Check your client’s financial year. The changes only apply to company financial years starting on or after April 2025.
Expect a significant delay. Even if your client’s financial year started after April 2025 and they now meet the ‘small’ criteria, the change in their off-payroll obligations won’t take effect until the following tax year. This could mean waiting until the 2027/28 tax year for you to regain control of your IR35 status.
Compliance not be ignored For the foreseeable future, contractors working with businesses that are still deemed ‘medium’ or ‘large’ must continue to adhere to the existing off-payroll working rules.
What’s your next move?
Communicate with your clients. Understand their financial year and whether they anticipate a change in their company size classification.
Even if you see change on the horizon, don’t relax your IR35 compliance. Until your client explicitly confirms they are no longer required to apply the off-payroll rules and this is reflected in their payment practices, continue to operate as per the current regulations.
Keeping up-to-date with any further announcements or clarifications from the government regarding the implementation of these changes is paramount to keeping compliant.
While the long-term outlook suggests a positive shift for many freelancers and contractors, this latest update serves as a reminder that the journey to simpler IR35 compliance will be a gradual one.
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