From 6 April 2026, the UK small-company thresholds rose to £15 million turnover and £7.5 million balance sheet total. The employee headcount limit stayed at 50. HMRC estimates around 14,000 companies will move into “small” status under the new rules.
The change shifts IR35 status determination responsibility back to each contractor’s personal service company. The catch: because IR35 size tests work on the previous financial year, this April-2026 change only bites for IR35 purposes from April 2027 at the earliest. UK HR teams have a year to prepare.
- The thresholds changed on 6 April 2026 - turnover £15m, balance sheet £7.5m, employees 50, with a 2-of-3 qualifying test.
- IR35 reclassification effective from April 2027 - because the test references the previous financial year, this April-2026 change shows up in your IR35 obligations a year later.
- 14,000 UK companies will move from medium to small per HMRC estimates, removing their obligation to issue Status Determination Statements.
- Newly-small companies must still respond to size confirmation requests within 45 days - silence is treated as “not small” and IR35 obligations continue.
- No mainstream UK HR software has built-in IR35 SDS workflow in 2026. Rippling and Deel lead on global contractor management; UK firms rely on HMRC’s free CEST tool plus their HR system’s document storage.
What changed on 6 April 2026
If your business hires UK contractors and runs global teams, the easiest place to start is with a platform built for cross-border contractor compliance. Deel is one of the leading specialists. UK-only firms with smaller contractor footprints can usually rely on their existing HR system plus HMRC’s free CEST tool, covered further down.
The Companies Act 2006 was amended to lift the small-company financial thresholds for the first time in over a decade. From 6 April 2026, a UK company qualifies as “small” if it meets at least two of three criteria: annual turnover under £15 million (previously £10.2m), balance sheet total under £7.5 million (previously £5.1m), or fewer than 50 employees (unchanged). This is the 2-of-3 test.
Worked example: a UK company with £14 million turnover, £4 million balance sheet, and 45 employees now qualifies as small. It meets all three. A company with £18 million turnover, £4 million balance sheet, and 30 employees also qualifies as small because it meets two of three. Under the old thresholds, both these companies would have been “medium” and subject to off-payroll working obligations.
Three groups care about this change. UK businesses that hire contractors regularly. Contractors who supply services through their own personal service company. And HR or finance teams that manage contractor onboarding, payments and compliance documentation. For all three, the rules of engagement just shifted.
Why April 2027, not April 2026
The IR35 size determination references your previous financial year. A UK company assessing its IR35 status for engagements starting April 2026 looks back at financial year 2024 to 2025 to determine whether it was small under the old thresholds. The new thresholds only become relevant when assessing the financial year that runs through April 2026 to April 2027. That means the practical IR35 impact lands in your April 2027 size check.
UK HR teams should use the 2026 to 2027 window to plan: clean up contractor records, decide which engagements move to outside-IR35 once you become small, and brief contractors on the change. The lead time is the planning advantage. Treat it as such.
How to test whether your company is now small
The 2-of-3 test applies as soon as your most recent financial year crosses the threshold. Three numbers to check: turnover, balance sheet total, and average number of employees.
| Criterion | Threshold from 6 April 2026 | Previous threshold |
|---|---|---|
| Annual turnover | Under £15 million | Under £10.2 million |
| Balance sheet total | Under £7.5 million | Under £5.1 million |
| Average number of employees | 50 or fewer | 50 or fewer |
You qualify as small if you meet at least two of the three criteria. The test applies to the company itself, and where a company is part of a group, the group’s consolidated figures are usually relevant. Get specialist accountancy advice if the group structure is non-trivial.
For HR teams without finance involvement, ask the finance director for the audited turnover and balance sheet total for the latest filed accounts, plus the average number of employees (typically calculated as the average across the 12 months of the financial year, not the headcount on any single day). The threshold test is straightforward once you have these three numbers.
What changes for newly-small companies
If you cross from medium to small, your IR35 obligations simplify substantially. Three changes matter most.
Status Determination Statements stop. Under the rules in force since April 2021, medium and large clients have been required to issue a written SDS for every contractor engagement, classifying it as inside or outside IR35 before the contractor’s first payment. As a newly-small company, that obligation falls away. Contractors self-assess their status using HMRC’s CEST tool or other guidance, and they carry the legal risk if HMRC disagrees.
The 45-day size confirmation rule remains. Contractors can request written confirmation of your size status. You must respond within 45 days. If you don’t respond, you are treated as not-small, and the medium-or-large obligations continue to apply. Build a simple internal process for handling these requests: a contracts inbox, a templated response letter, and a calendar reminder if a request comes in.
IR35 liability shifts to the contractor’s PSC. If HMRC investigates and finds an engagement should have been inside IR35, the contractor’s personal service company carries the liability and back-tax exposure, not your business. This is a meaningful risk transfer.
Engagements that began while your company was medium or large continue under the old rules until they end. When a new engagement starts and your latest size test makes you small, the new engagement falls under the small-company rules. Keep clear records of when each engagement started.
What stays the same for medium and large clients
If your company stays medium or large (above two of the three thresholds), the off-payroll working rules in force since April 2021 continue without change. You still issue a Status Determination Statement before the first payment. You still bear the legal risk on misclassification. The employer’s National Insurance rate of 15 per cent (effective April 2025) still applies to inside-IR35 engagements, adding roughly £1,500 to £2,000 per engagement per year compared to outside-IR35.
Mid-market firms close to the threshold should monitor their size status year by year. A company that moves from medium to small for one financial year and back to medium the next will face two switches in IR35 obligations – a real administrative cost. Some firms intentionally structure their contractor engagements with both small-status and medium-status periods in mind.
HR software for UK contractor management in 2026
Here is the awkward reality of HR software in 2026: no mainstream UK HR platform has a dedicated IR35 Status Determination workflow. Most platforms treat contractors as a secondary user type, not a first-class compliance entity. The leading global contractor platforms (Rippling, Deel) cover onboarding, payments and KYC across 150-185 countries but do not integrate HMRC’s CEST tool or generate SDS documents. UK-built HR software (BrightHR, Breathe HR, Sage HR) handles employees well but contractors only as records.
Three platform categories handle UK contractor management at different depths.
| Platform | Category | Contractor strength | IR35-specific tooling |
|---|---|---|---|
| Rippling | Global HRIS + EOR | 185+ countries, KYC automation, custom invoices, time tracking | None – uses HMRC CEST externally |
| Deel | Global EOR specialist | 150+ countries, worker classification at onboarding, multi-currency payments | None specific; general worker classification advice via Deel legal team |
| Employment Hero | UK + AU mid-market HRIS | UK-aware contractor records and payments | None; UK contractor records held alongside employee records |
| Sage HR | UK SME HRIS | Contractor records and document storage | None; relies on linked Sage Payroll for payments |
| BrightHR, Breathe HR, CharlieHR | UK SME HRIS | Limited – contractors as records only, no native payment | None |
The “no IR35 tool” finding looks alarming. It is not, in practice. HMRC’s CEST tool is free and is the only status check tool HMRC commits to standing behind. Any HR platform that built its own classification tool would in effect compete with HMRC, and would face legal exposure if its determinations disagreed with HMRC’s view. The market settled on: HR software stores the documents, HMRC’s CEST tool produces the assessment.
For UK companies that hire contractors globally, the platform choice usually comes down to Rippling for the unified HR-plus-IT-plus-finance approach or Deel for pure EOR depth. Deel is the most-deployed for genuinely global teams; Rippling fits when your hiring is global but you also want one platform for HR and IT provisioning. UK-only firms with light contractor needs usually stay on their existing UK-built HR platform (BrightHR, Breathe HR, Sage HR) and use CEST plus document storage manually.
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Worked example: a mid-market tech firm planning the transition
Take a hypothetical UK SaaS company. £12 million turnover, £6 million balance sheet, 65 employees. Under the new thresholds, this company qualifies as small (it meets the turnover and balance sheet criteria; the employee count is over 50, but you need only 2 of 3). The company hires 18 contractors at any given time across engineering, design and customer success.
Under the old rules, this company would have been “medium” and obliged to issue an SDS for every contractor. From the size test that covers financial year 2026 to 2027 onwards (so practically affecting engagements starting from April 2027), this company is small. Three things change in their HR operations.
First, SDS production stops for new engagements that start under the small-company status. The HR team’s contractor onboarding pack drops the SDS document; the contract template moves the IR35 representation to the contractor’s PSC. The HR system stores the new contract template and the contractor’s self-assessment evidence.
Second, the contractor onboarding flow changes. The HR team adds a step asking the contractor to confirm they have assessed their own IR35 status using CEST or equivalent. The HR system stores the confirmation as part of the contractor record. This is a five-minute change to onboarding documents – no platform migration.
Third, the company prepares a templated response to size confirmation requests, plus a calendar workflow ensuring a 45-day response. This is operational housekeeping, not a software change. A simple shared inbox plus a 30-day reminder works.
What this company does not need to do: change its HR software, hire a new compliance team, or buy IR35-specific tooling. The change is administrative. The leverage is in clean record-keeping, which any solid UK HR system for under-50 employees handles well enough.
Common IR35 mistakes UK HR teams make in 2026
Five errors come up repeatedly when HR teams handle IR35 transition planning. Avoiding them costs nothing.
Mistake 1: assuming the threshold change applies immediately. The thresholds rose on 6 April 2026, but the IR35 size test uses your previous financial year. Companies with an April-to-April financial year don’t see the IR35 impact until April 2027. Plan accordingly; don’t panic in May 2026.
Mistake 2: dropping SDS for engagements that started under the old rules. An engagement that began while you were medium continues under the old rules until it ends. Don’t retroactively unwind documentation that was correct when issued.
Mistake 3: ignoring the 45-day size confirmation rule. A contractor who asks for written confirmation of your size status must get a response within 45 days. Silence is treated as not-small. Build the process now, not after the first request lands.
Mistake 4: treating contractor management as an HR-only concern. Finance owns the size test inputs. Legal or compliance owns the contract template change. HR owns the document workflow. None of these alone covers the full transition. Build a 3-person standing meeting (HR, finance, legal) for the 18 months between April 2026 and the first small-status engagement.
Mistake 5: over-investing in IR35 software. The platform market has not yet built a dedicated UK IR35 workflow because HMRC’s CEST tool is free, authoritative and accepted. Spending five-figure annual budgets on IR35-specific software is usually wasted. The leverage is in clean records and CEST usage, not in software differentiation.
Our verdict: best HR software for UK contractor management in 2026
The best contractor management software depends on your geographic spread and whether your contractors are UK-only or international.
UK-only contractor base, under 50 employees: stay on your existing UK HR system (BrightHR, Breathe HR, Sage HR, CharlieHR, People HR) and use HMRC’s CEST tool manually. Cost: typically £15-£100 per month for HR software, free for CEST.
UK-only contractor base, 50 to 250 employees: consider whether your existing HRIS handles contractor records distinctly from employees. Sage HR, People HR and Employment Hero are the clearest UK mid-market fits.
Globally distributed contractor base of any size: Deel for pure EOR and contractor depth across 150-plus countries, or Rippling if you also want unified HR plus IT plus finance. Both handle UK contractors well even though neither claims IR35-specific tooling.
No platform in this list will produce an SDS for you, run CEST inside its UI, or take legal liability for your status determinations. That’s not a market failure. It’s the right shape for the market given HMRC’s free authoritative tool. The platform’s job is to store the records cleanly, pay the contractor reliably, and integrate with your existing finance stack. On that test, the UK HR software market in 2026 is well served.
If your business is borderline between medium and small, monitor the size test every financial year. A clean record-keeping discipline saves you months of recovery work if HMRC opens an enquiry. A solid HRIS is the foundation – what you build on top of it (CEST workflow, contractor onboarding pack, size-confirmation response template) determines whether your IR35 process is calm or panicked.
