IR35 changes shift liability to freelancers as more firms qualify as ‘small’, experts warn

Changes to IR35 rules coming into effect are set to shift responsibility away from more businesses and onto contractors, as thresholds for what qualifies as a “small” company are increased, analysis from Malt has revealed.

The reforms mean that a larger number of companies will no longer be responsible for determining whether contractors fall inside or outside IR35, placing greater responsibility on freelancers to ensure compliance and price their work accordingly.

IR35 legislation is designed to ensure that contractors working through intermediaries, such as limited companies, pay similar tax and National Insurance (NI) to employees where their working arrangements are comparable.

According to HMRC, more than 130,000 workers have already been moved into deemed employment tax status since reforms were introduced in 2021.

Under the rules, responsibility for determining IR35 status depends on company size.

Smaller companies are exempt, meaning contractors must assess their own status, while medium and large businesses are required to carry out this determination.

The upcoming changes significantly raise the threshold for what is classed as a small company, meaning more organisations will fall outside the requirement to issue Status Determination Statements (SDS), shifting the compliance burden back to contractors.

Vincent Huguet, CEO and co-founder of Malt, said: “Moving the threshold for ‘small’ company size helps to shift responsibility away from hiring managers, meaning they can focus on when and what they want, not necessarily how much.”