IR35 decides whether a contractor working through their own limited company is, in substance, an employee of the client — and therefore whether the engagement gets taxed like employment. Who makes that decision, and who pays if it is wrong, depends on the client's size: medium and large clients decide and carry the risk under the off-payroll rules; where the client is small, the contractor's company decides and carries it. The rules have been stable for a few years, but two changes now in motion — bigger "small company" thresholds and umbrella-company liability — are redrawing who holds the risk, and half the commentary about the timing is wrong.
Here is the current map, the status tests as the courts now apply them, and what changes when.
The two regimes and who decides
Under the off-payroll rules (all public sector bodies since 2017 — the size exemption never applied there — and medium and large private and voluntary-sector clients since 2021), the client must assess each engagement, issue a status determination statement with reasons, and pass it down the chain; the fee-payer then operates PAYE and NIC on inside-IR35 engagements. Clients must take "reasonable care" — blanket determinations fail that test — and must run a dispute process, answering a contractor's challenge within 45 days or inheriting the liability themselves.
Where a private-sector client is small (or wholly overseas), the original IR35 applies instead: the contractor's company self-assesses and bears the risk. Since April 2024 the sting of client-side errors has softened: HMRC now offsets tax the contractor and their company already paid against the deemed employer's bill, ending the double-taxation that made every reclassification catastrophic — though employer NIC still lands in full.
The small-company change: April 2027, not 2026
The company-size thresholds that define "small" rose for financial years beginning on or after 6 April 2025 — turnover up to £15 million, balance sheet £7.5 million, 50 employees, meeting two of three. HMRC estimates around 14,000 clients will be reclassified as small, handing status responsibility back to their contractors' companies.
The timing is where the internet is misleading you. Because IR35 judges a client's size by the accounts whose filing deadline fell before the tax year — plus a two-year rule — HMRC's own guidance puts the earliest affected tax year at 2027/28, not the 2026/27 date circulating in adviser articles. The practical advice cuts both ways: clients near the thresholds should map their own commencement date company by company rather than assuming, and contractors serving newly-small clients should prepare to run their own assessments again — many for the first time since 2021, with no in-house muscle memory left.
What actually decides status
The statutory tests never changed; the case law keeps refining them. Three pillars, then the whole picture:
- Personal service. A genuine, unfettered right to send a substitute is the closest thing to a trump card — and a substitution clause nobody could ever use is worth nothing;
- Control. Who decides what is done, how, when and where. Professional autonomy helps; being managed like staff does not;
- Mutuality of obligation. After the Supreme Court's PGMOL decision, minimal mutuality and a "framework of control" can exist even in short one-off engagements — which sounds ominous for contractors, but the sequel matters: on remittal, the referees were still found self-employed at the whole-picture stage. The gateway tests get you into the room; the multi-factorial assessment — financial risk, equipment, integration, being in business on your own account — decides the case.
HMRC's CEST tool was substantially revised in April 2025 — a new mutuality section, tightened substitution questions — and HMRC stands behind its results given accurate, honest answers. Its limits are unchanged: a stubborn rate of "unable to determine" outcomes, and answers only as good as the facts entered. Best practice remains CEST plus a reasoned, evidence-based determination on file, with the contract and the working reality actually matching — the gap between the two is where tribunal cases are lost.
The umbrella flank: April 2026
Alongside all this, engagement chains using umbrella companies acquired a new risk this year: since 6 April 2026, recruitment agencies — or the end client where there is no agency — are jointly and severally liable for PAYE and NIC an umbrella fails to pay over, with no reasonable-care defence. For businesses that responded to the 2021 off-payroll rules by pushing contractors into umbrellas, the risk did not disappear; it changed shape. Due diligence on umbrella partners — who employs the worker, where the PAYE actually goes — is now a compliance obligation with a number attached.
What each party should be doing
Clients: know your size classification and its commencement date; refresh determinations on long-running engagements (facts drift); document reasonable care; diligence your umbrella chain. Contractors: keep evidence of business-on-own-account factors — multiple clients, own equipment, real financial risk; check whether your clients go small in 2027/28 and be ready to self-assess; and challenge an SDS you disagree with promptly and in writing — the 45 days is the client's clock to respond, and a disagreement can be raised any time up to the final payment for the engagement. Agencies: the JSL rules just made your supply chain your tax risk.
Acumon runs IR35 status reviews, SDS processes and dispute support through our employment tax team, with our contractor accounting side handling the PSC end — returns, deemed payments and the self-assessment decisions coming back in 2027. If your engagements were last reviewed when the rules changed in 2021, the facts have had five years to drift; the review is due.