For most of the last twenty years, the argument about IR35 was an argument about money. Outside the rules you took a small salary and dividends and kept a great deal more of your fee; inside them you were taxed like an employee without any of the rights. The gap was worth fighting over, and people fought over it.

That gap has been closing for four years, and in 2026/27 it is narrower than almost anyone assumes. Dividend tax rose again this April. Corporation tax on a contractor-sized profit is 25% with marginal relief. The arithmetic at the end of this article, on a realistic £110,000 of client spend, comes out around £2,900 apart.

That does not make the rules unimportant. It changes what they are about: who carries the risk, who decides, and what happens when a determination is wrong. Here is how it actually works this year.

There are two sets of rules, and they behave differently

People say "IR35" for both. They are not the same thing and the difference decides who is liable.

  • The original rules (Chapter 8) apply when your end client is a small private-sector organisation, or is based wholly overseas with no UK connection. Your own company decides whether the engagement is caught, and if it is, your company calculates a deemed employment payment and pays the income tax and National Insurance. The liability sits with you.
  • The off-payroll rules (Chapter 10) apply when your end client is a public authority or a medium or large private-sector organisation. The client decides, issues a Status Determination Statement, and the fee-payer — usually the agency — deducts income tax and employee National Insurance from your fee and pays employer's National Insurance on top. The liability sits with them.

So the first question is never "am I inside or outside?" It is "who is entitled to decide?"

Question one: is your client small?

A private-sector client is small if it meets at least two of three conditions. From 6 April 2025 those conditions are turnover of not more than £15 million, a balance sheet total of not more than £7.5 million, and not more than 50 employees. Those figures were raised substantially — and this is where a lot of contractors have got ahead of themselves.

The new thresholds apply to financial years beginning on or after 6 April 2025. But a client works out its size for a tax year by looking at the last financial year for which its accounts filing deadline ended before that tax year began. For a company with a 31 March year end and the usual nine-month filing window, the first financial year under the new thresholds ends 31 March 2026, with a filing deadline of 31 December 2026 — which lands it in the 2027/28 tax year. There is also a two-consecutive-years condition before a change of size takes effect.

Why the higher small-company thresholds do not change off-payroll status until 2027/28 The higher thresholds are law now. They reach off-payroll in 2027/28. Client with a 31 March year end and a nine-month filing deadline. 6 APR 2025 New limits enacted 31 MAR 2026 First year under them 31 DEC 2026 Filing deadline ends 6 APR 2027 Status can change For 2026/27, your client's size is still measured on the old thresholds: turnover £10.2m, balance sheet £5.1m, 50 employees — two out of three. If a client has told you it is now small and stopped issuing determinations, ask which financial year it measured. It may have jumped a year.

The practical point: a client that is genuinely still medium-sized for 2026/27 but has stopped issuing determinations because "the thresholds went up" has moved the liability nowhere. It remains theirs, and the mess is discovered on enquiry.

Question two: who decides, and what you are owed

Where the off-payroll rules apply, the client must take reasonable care in reaching a decision and give you a Status Determination Statement setting out the conclusion and the reasons for it. It has to go to you and to the party the client contracts with. A determination with no reasoning, or one produced by applying a single answer to every contractor on site regardless of what they do, is not reasonable care — and where the client fails to take reasonable care, the liability stays with the client rather than passing down the chain.

If you disagree, you can use the client-led disagreement process. The client has 45 days to respond, and must either confirm the determination with reasons or issue a new one. It is not an appeal to HMRC and there is no tribunal at the end of it, which is a real weakness in the system. It is still worth using, in writing, because a documented challenge is the evidence you will want later.

Where an inside determination has been applied and tax deducted, HMRC now sets off the tax and National Insurance your own company has already paid on the same income against what the deemed employer owes. That stops the same income being taxed twice, but the offset works between HMRC and the deemed employer — it does not automatically put money back in your pocket.

Question three: would this be employment if the company were not there?

Strip out the intermediary and ask whether what remains looks like a contract of employment. Three things carry most of the weight.

  • Control. Not whether someone can tell you what the outcome must be, but whether they direct how, when and where you do it. A contractor told which system to build has a client. One told to be at a desk from nine to five, to take work from a queue and to ask permission for time off has an employer.
  • Personal service and substitution. Can you send a suitably qualified substitute at your own cost? A genuine, unfettered right that the client would actually accept points strongly outside. A clause that exists only in the contract and would be refused in practice counts for nothing.
  • Mutuality of obligation. Is there an obligation on the client to offer work and on you to accept it once the project ends? A rolling arrangement where you are simply moved onto the next thing looks like employment.

Around those, the smaller indicators still matter and are the ones contractors most often undermine themselves on: being in the internal directory, having a company email signature and job title, attending team appraisals, using client equipment, and taking part in staff social events at the client's expense. None of these is decisive. All of them are cited.

What changed for umbrella workers on 6 April 2026

If you work through an umbrella company, the biggest change in years took effect this April. Responsibility for operating PAYE on your pay has moved from the umbrella company to the recruitment agency that supplies you to the end client. Where there is no agency in the chain, it sits with the end client.

The umbrella remains your employer and still pays you, but the agency or client is now accountable for making sure PAYE is right, and HMRC can recover any shortfall directly from them. That is aimed squarely at the schemes that left workers with unexpected tax bills years later. For you, it means somebody with real assets now has a reason to check your payslip, and if you have ever been offered an arrangement where more of your pay arrives untaxed than seems plausible, the party carrying that risk has changed.

The money, at 2026/27 rates

The figures below are illustrative, but the rates and rules are the real 2026/27 ones. Assume a client budget of £110,000 for a year's work — roughly £500 a day over 220 days — and a contractor with no other income who draws everything out in the year.

Outside IR35, through your own limited company

  • Fees £110,000, less £3,000 of genuine business costs, less a £12,570 salary and £1,135 of employer's National Insurance on it. Profit: £93,295.
  • Corporation tax at 25% with marginal relief: £20,973, an effective rate of 22.5%.
  • Dividends of £72,321. After the £500 dividend allowance, tax at 10.75% and then 35.75%: £16,376.
  • In hand: £68,515.

Inside IR35, through an umbrella

  • From the same £110,000, take an umbrella margin of about £1,150 a year, then employer's National Insurance at 15% and the apprenticeship levy at 0.5%. Gross pay: £94,892.
  • Income tax: £25,389. Employee National Insurance at 8% and then 2%: £3,908.
  • In hand: £65,595.
Net pay from the same client budget, outside and inside IR35, at 2026/27 rates Same £110,000 of client budget. £2,920 apart. Illustrative figures at 2026/27 rates. No pension contributions in either column. £68,515 Outside — own company, salary and dividends £65,595 Inside — umbrella, taxed as employment In 2021 the same comparison was worth several times as much. Dividend rates rose to 10.75% and 35.75% this April, and corporation tax on this profit is 22.5% after relief. What is left is not a tax argument. It is a risk and control argument.

Two things that comparison deliberately leaves out, because both are choices rather than consequences of status. The first is pension: an employer contribution paid straight from your own company escapes corporation tax and dividend tax entirely, and it is now the single largest genuine advantage of working outside. The second is timing: a company lets you leave profit undrawn and take it in a leaner year, which an umbrella cannot do. Our pension guide covers the first properly.

What the comparison also does not show is what you give up outside: no holiday pay, no sick pay, no notice, no redundancy, and the debt risk if a client fails to pay. Priced properly, that is worth a great deal more than £2,900.

What to do this month

  1. For each current engagement, write down which rules apply — small client or not, UK or overseas — and therefore who is entitled to decide. Do this before you argue about the answer.
  2. Ask any client that has recently declared itself small which financial year it measured. If the answer is the year ended 31 March 2026, the change does not reach off-payroll status until 2027/28.
  3. Collect the Status Determination Statement for every inside engagement. If you do not have one, ask in writing. A determination that was never issued is a gap in the client's compliance, not yours.
  4. Read your contract against how the work actually runs. Where the two disagree, it is the working reality that decides, and the contract is the thing to get changed.
  5. If you are inside on one contract and outside on another, keep the evidence separate from day one — separate folders, separate records. Reconstructing it two years later is where these cases are lost.
  6. If you work through an umbrella, check one payslip line by line against the assignment rate now that the agency carries the PAYE risk. Anything you cannot reconcile is worth an email this week.

Where we help

We work with contractors on both sides of the line: reviewing engagements before they start rather than after HMRC asks, running the company properly where you are outside, and making sure an inside contract is not costing you more than it should through a badly built umbrella arrangement. We will also tell you plainly when a company is no longer worth running for the tax alone, because on the numbers above it often is not. See our contractor accounting page, our comparison of sole trader against limited company, and fixed fees from £19 + VAT a month. Get started.