IR35 2027: the £15m size test first applies on 6 April and flips some UK clients to small

Summary. From the 2027/28 tax year, which starts on 6 April 2027, higher Companies Act size limits can begin to take private-sector clients out of the off-payroll working rules (IR35). A company is medium or large, and must decide contractors' tax status, if it exceeds two of three limits: turnover over £15 million (was £10.2 million), balance sheet total over £7.5 million (was £5.1 million) or more than 50 employees (unchanged), and a change counts only after two consecutive financial years. The new limits apply to financial years beginning on or after 6 April 2025. HMRC says 2027/28 is the earliest tax year affected for a normal 12-month year, because size is read from the last financial year whose filing deadline passed before the tax year began. On our arithmetic, a private company whose year ends between 5 April and 5 July 2026 can flip for 2027/28, while December and March year-ends wait until 2028/29. A client that drops to small must withdraw its status determinations before 6 April, or it is treated as medium or large for the whole year. Agencies of any size keep their duties. This is general information, not tax or legal advice.

About this article. For finance, HR and procurement leads at UK technology companies, and their agencies and contractors. We checked every threshold, date and duty on 13 November 2026 against the statute (Companies Act 2006, ITEPA 2003, SI 2024/1303), HMRC's Employment Status Manual, GOV.UK guidance and the Budget 2026 rates annex. Size turns on your own accounts and group, so confirm your position with a qualified adviser. Researched with AI assistance and reviewed by our editorial team.

What changed in the size test

The off-payroll rules in Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) apply to public authorities and to medium or large private and voluntary sector clients. Small private clients are outside them, and the worker's own company decides status under Chapter 8 instead. ITEPA section 60A defines small by reference to the small companies regime in the Companies Act 2006, applied to the client's last relevant financial year. The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303), made on 9 December 2024, raised two of those limits for financial years beginning on or after 6 April 2025. The figures below are from sections 382 (companies) and 383 (groups).

Four rules sit on top of the numbers. A company must exceed two or more limits, and a change of status counts only when it happens in two consecutive financial years. Size then holds for the whole tax year. A subsidiary cannot be small if the parent of its group is not small, and the parent is tested on aggregated figures for every member, wherever in the world it is resident. Companies excluded from the small companies regime by section 384, such as public companies, banks, insurers and members of an ineligible group, cannot be small whatever their numbers. For a financial year that is not 12 months long, the turnover limit is adjusted pro rata.

The employee count is narrower than many finance teams assume: it is the monthly average of people employed under contracts of service by the company itself. HMRC excludes deemed employees, so a 40-person company running 25 inside-IR35 contractors still counts 40.

Limited liability partnerships, overseas companies and unregistered companies follow the company rules. Other partnerships and non-corporate clients use a turnover-only test. ITEPA ties it to the current turnover figure in section 382(3), now £15 million, but HMRC's manual still quotes £10.2 million for these entities and says the changes do not affect their principles. Take advice before relying on the higher figure.

HMRC's main client guidance page still shows only the old figures, and the Budget 2026 document of 28 October 2026 does not mention the off-payroll rules.

Why 2027/28 is the first year, and why your year-end decides it

HMRC reads size from the last financial year for which the period for filing accounts ended before the tax year began. For a private company that period is nine months after the year-end, and where the year ends on the last day of a month the deadline is the last day of the ninth month. The statutory deadline counts, not the day you actually file.

The regulations add a transitional look-back. In the first financial year beginning on or after 6 April 2025, a company is treated as having qualified as small in earlier years if the new limits would have made it so. In HMRC's first example, a medium company with a 30 June year-end is small on the new limits for the year to 30 June 2026, looks back, finds it would also have been small for the year to 30 June 2025, and leaves the rules from 2027/28. The second example runs the other way: a small company that would have become medium on the old limits stays small.

The table below is our arithmetic from those rules for a 12-month private company year, not an HMRC table.

The March row surprises people. A year that began on 1 April 2025 started five days before the new limits took effect, so it is still tested on the old figures. A March year-end company that is medium on the old limits and small on the new ones keeps operating IR35 throughout 2027/28. HMRC's own statement fits the table: the earliest filing deadline for a period beginning on or after 6 April 2025 falls in January 2027. Short or long periods, first-year companies, filing extensions and group year-end mismatches change the answer.

Which clients flip: six profiles

Each company has the same figures in both relevant years and a qualifying year-end. Met means a limit is exceeded.

The employee test did not move, so a company with more than 50 staff stays in scope if either turnover exceeds £15 million or the balance sheet exceeds £7.5 million. Companies just over the old turnover line with modest balance sheets are the likeliest to flip. A UK subsidiary of an overseas group, including an Indian or US parent, is judged on the worldwide group.

A dated plan from now to 6 April 2027

Payroll teams face the 6 April 2027 changes to payrolling benefits in kind in the same weeks, so book the time now. Companies whose flip lands in 2028/29 run the same plan a year later.

Checklist for clients that flip to small

1. Confirm the dates. Identify the relevant financial years for 2027/28 and 2028/29, then test both on the new limits, including the transitional look-back.

1. Test the group. If you have a parent, apply the aggregate group limits in section 383, net or gross.

1. Record the decision. Keep the calculation, the accounts it relies on and a finance sign-off.

1. Withdraw status determinations before the tax year starts. Section 61TA requires a client that gave a status determination statement, and does not qualify as medium or large for a later tax year, to state before that year begins that it does not qualify and that the statement is withdrawn from the start of the year. The statement goes to the worker if the determination went to the worker, and to the deemed employer if it went to your agency. For a 2027/28 flip that means by 5 April 2027. Miss it and you are treated as medium or large for that engagement for the whole year, and you take the fee-payer's place as deemed employer.

1. Answer size questions. A small client must confirm its size when the party it contracts with, or the worker, asks. Expect the question in March.

1. Agree payroll treatment. If you contract directly with personal service companies, agree how payments from 6 April will be handled.

1. Review contracts with advisers. Check status warranties and indemnities, but do not relabel engagements to fit a preferred outcome.

1. Keep umbrella checks running. HMRC's guidance on the April 2026 umbrella PAYE rules contains no exemption for small clients.

1. Re-test every year. Two consecutive years over the limits bring you back into scope.

Checklist for clients that stay medium or large

• Reissue or confirm status determinations for engagements renewing in 2027, with reasons and reasonable care.

• Keep the disagreement process working. You must answer within 45 days of receiving a challenge; if you do not, you become the deemed employer from the end of that period until you respond.

• Keep records of every determination with its reasons and the fees paid, and of each contractor's and intermediary's name and address.

• Review any contracted-out service arrangements. HMRC says a client receiving contracted-out services from a third party, such as an outsourcing company, does not apply the rules, but warns against relabelling contracts.

• Map umbrella supply chains. Since 6 April 2026 the agency that contracts with you, or you where there is no agency, is responsible for PAYE being operated correctly, and HMRC can recover underpayments from that party.

• Plan for umbrella company regulation, which the government's timeline, updated on 5 November 2026, puts in December 2027. Our Employment Rights Act dates for HR and payroll covers the other 2027 changes.

Checklist for agencies and contractors

Agencies. Size tests apply only to clients, so agencies of any size keep their duties. Before 6 April 2027, ask every private-sector client to confirm its 2027/28 size in writing and log any withdrawal notices. If you hold the status determination statement and are the lowest qualifying party above the worker's company, you are the deemed employer. If no statement arrives, HMRC says pass the payment on without deductions and ask the party above you why. The first agency in the chain should vet who it contracts with, because liability can transfer back to it if lower parties dissolve without paying. If you contract with the end client, umbrella PAYE liability has sat with you since 6 April 2026.

Contractors. If your client is newly small, your own company decides whether the intermediaries rules in Chapter 8 apply, contract by contract. Keep evidence of how the work is done: control, substitution and how you are paid. If your client stays medium or large, expect a reasoned status determination and use the 45-day disagreement route if you think it is wrong.

Decision table: who decides status and who pays from 6 April 2027

The table applies the client, agency and umbrella guidance and the overseas-client rule in HMRC's manual.

Worked example: what the flip is worth to a 60-person software company

Profile A again: a software company with £12 million turnover, a £6 million balance sheet, 60 staff and a 30 June year-end. It contracts directly with six developers' personal service companies, all assessed inside IR35, at £600 a day for 220 days, or £132,000 each.

As deemed employer in 2026/27. Employer National Insurance is 15% above the £5,000 annual secondary threshold. Roughly, (£132,000 minus £5,000) × 15% = £19,050 per developer, or £114,300 for six. Budget 2026's rates annex keeps the same 15% rate and £96 weekly threshold for 2027/28. This is an approximation: the deemed direct payment is the fee less VAT and certain costs, thresholds apply per earnings period, and the Apprenticeship Levy of 0.5% applies, above a £15,000 allowance, where the pay bill exceeds £3 million.

From 2027/28, if the withdrawal notices go out by 5 April 2027. The company stops operating deemed employment. Each developer's company makes its own Chapter 8 assessment and, where caught, pays employer National Insurance itself. The £114,300 moves to the contractors rather than vanishing, which usually shows up in day-rate negotiations.

If the notices are missed. The company is treated as medium or large for all of 2027/28 for those engagements, and the £114,300 stays its cost for another year.

The same company with a 31 March year-end keeps operating IR35 for all of 2027/28 and can flip only from 6 April 2028, because its first year under the new limits runs from 1 April 2026.

Offshore and outsourced alternatives, set out neutrally

Clients that stay in scope often revisit how they buy engineering capacity. No route below is automatically cheaper; each moves a different risk.

Offshore is not an IR35 workaround. If your managers direct individual offshore engineers day to day, you are buying staff augmentation; our guide to staff augmentation and the 45-day rule covers that risk. Our break-even analysis of offshore, nearshore and onshore developer costs works through the arithmetic for UK buyers.

How eCorpIT can help

eCorpIT is a Gurugram-based technology organisation, founded in 2021, assessed at CMMI Level 5 and MSME certified, with senior-led engineering teams working across AWS, Microsoft and Google platforms. If the new thresholds leave you in scope and you move a workstream to a defined-outcome model, our application development teams deliver agreed scopes under our own direction, though we do not give tax advice. Talk to us at /contact-us/.

Last updated: 13 November 2026.

References

1. Companies Act 2006, section 382: companies qualifying as small, general — legislation.gov.uk

1. The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, SI 2024/1303 — legislation.gov.uk

1. ESM10006A, off-payroll working: size-threshold changes from 6 April 2025, updated 21 April 2026 — HM Revenue and Customs

1. Income Tax (Earnings and Pensions) Act 2003, section 61TA: duty to withdraw status determination statement — legislation.gov.uk

1. Off-payroll working rules for agencies — HM Revenue and Customs

1. Understanding off-payroll working (IR35), updated 26 February 2026 — HM Revenue and Customs

1. Income Tax (Earnings and Pensions) Act 2003, section 60A: when a company qualifies as small for a tax year — legislation.gov.uk

1. Companies Act 2006, section 383: companies qualifying as small, parent companies — legislation.gov.uk

1. ESM10006, off-payroll working: meaning of medium or large-sized non-public sector organisation and wholly overseas clients — HM Revenue and Customs

1. Income Tax (Earnings and Pensions) Act 2003, section 60C: when a company qualifies as small, subsidiaries — legislation.gov.uk

1. ESM10007, off-payroll working: meaning of medium or large-sized non-public sector organisations, groups — HM Revenue and Customs

1. Companies Act 2006, section 384: companies excluded from the small companies regime — legislation.gov.uk

1. Income Tax (Earnings and Pensions) Act 2003, section 60E: when other undertakings qualify as small — legislation.gov.uk

1. Income Tax (Earnings and Pensions) Act 2003, section 60F: when other persons qualify as small — legislation.gov.uk

1. Off-payroll working for clients, updated 30 August 2024 — HM Revenue and Customs

1. Budget 2026, 28 October 2026 — HM Treasury

1. Companies Act 2006, section 442: period allowed for filing accounts — legislation.gov.uk

1. Companies Act 2006, section 443: calculation of period allowed — legislation.gov.uk

1. PAYE rules for labour supply chains that include umbrella companies from 6 April 2026, updated 19 June 2026 — HM Revenue and Customs

1. ESM10014, off-payroll working: reasonable care — HM Revenue and Customs

1. Income Tax (Earnings and Pensions) Act 2003, section 61T: client-led status disagreement process — legislation.gov.uk

1. ESM10015, off-payroll working: client-led status disagreement process — HM Revenue and Customs

1. Plan to Make Work Pay and Employment Rights Act: timeline update, updated 5 November 2026 — Department for Business and Trade

1. Rates and thresholds for employers 2026 to 2027 — HM Revenue and Customs

1. Budget 2026 overview of tax legislation and rates, Annex A: rates and allowances — HM Revenue and Customs