The UK contractor landscape is undergoing significant reform. A series of legislative and tax changes—set out in the Autumn Budget and due to roll out over the next two years—will reshape how contractors work and how companies engage with them.
These changes include revised IR35 rules, new thresholds for small companies, higher National Insurance and Capital Gains Tax rates, and tighter regulation of umbrella companies. Together, these developments will impact both contractors and the companies that hire them.
IR35: Changes to the Small Company Threshold
Effective April 2026, the criteria for defining a “small company” under the IR35 rules will be updated. Companies that meet at least two of the following thresholds will be considered small and therefore exempt from the off-payroll working rules:
- Annual turnover increasing from £10.2 million to £15 million
- Balance sheet total increasing from £5.1 million to £7.5 million
- Employee headcount remaining at 50 employees
As a result, responsibility for determining IR35 status will shift back to contractors when working with these newly reclassified small companies. Around 14,000 businesses are expected to fall into this category, affecting thousands of contractor engagements across the UK.
Other Autumn Budget Changes Impacting the Contractor Market
Employers' National Insurance Contributions (NIC)
From April 2025, employer NIC will increase by 1.2 percentage points, rising to 15%.
- The earnings threshold for NIC will drop from £9,100 to £5,000.
- This will increase costs for companies hiring contractors on a PAYE basis or via umbrella arrangements.
Capital Gains Tax (CGT)
In October 2024, CGT rates were raised:
- The lower rate increased from 10% to 18%.
- The higher rate rose from 20% to 24%.
This change has particularly affected contractors looking to wind up their companies or sell business assets, increasing the tax payable on gains realised after that date.
Umbrella Company Regulation
From April 2026, recruitment agencies will be required to apply PAYE to all workers engaged through umbrella companies. This aims to tighten compliance and ensure tax obligations are properly met.
How These Changes Affect Contractors
- Increased IR35 Responsibility: Contractors working with small companies will once again be responsible for assessing their own IR35 status. This requires a solid understanding of the legislation and access to reliable assessment tools.
- Higher Tax Liabilities: The rise in CGT rates will affect those looking to close their limited companies or dispose of assets, while changes to NICs may influence payment structures.
- Greater Need for Compliance Awareness: As agencies take more control over PAYE deductions, contractors must be vigilant when working through umbrella companies to ensure they’re aligned with compliant providers.
- Contract and Working Practice Reviews: Contractors should review their contracts, insurance, and day-to-day working practices to avoid unintentional IR35 risks.
How These Changes Affect Companies Hiring Contractors
- Reshaped IR35 Responsibilities: Companies reclassified as small will be exempt from determining contractors’ IR35 status, potentially reducing administrative burden—but they may still be exposed to reputational risk if contractors are not compliant.
- Rising Costs: The increased NIC rate and responsibility for PAYE under umbrella arrangements could raise the cost of engaging contractors, especially in long-term or high-volume scenarios.
- Need for Robust Onboarding and Supply Chain Processes: Agencies and end clients must ensure their recruitment processes account for compliance with new tax rules, especially when dealing with umbrella companies.
- Strategic Workforce Planning: These changes may prompt businesses to revisit their workforce mix and contractor usage—particularly in light of additional tax liabilities and compliance responsibilities
Recommendations
To adapt effectively to these upcoming changes:
- Stay Informed: Keep track of legislative updates and budget announcements.
- Seek Professional Advice: Legal and tax guidance can help ensure contracts and processes remain compliant.
- Review Contracts and Practices: Both contractors and companies should audit existing agreements and working arrangements.
- Consider Risk Mitigation Tools: Use IR35 assessment platforms or insurance products to protect against potential liabilities.
By staying ahead of these developments, both contractors and hiring companies can protect themselves from compliance risks and position themselves for success in a rapidly evolving contractor market.
How Nigel Wright Group Can Support You
Nigel Wright Group is committed to helping clients and contractors navigate these evolving challenges. Through our partnership with Kingsbridge, an award-winning independent provider of IR35 solutions, we offer access to a comprehensive platform that manages the entire IR35 process—from status assessments to insurance cover.
Kingsbridge’s portal provides clients with full visibility and confidence in meeting compliance obligations. Their dedicated IR35 team has successfully defended more IR35 investigations than any other provider, making them a trusted partner in this complex area.
Contractors working with Nigel Wright also benefit from access to Kingsbridge IR35 Protect, a unique insurance product that flexes to protect whichever party HMRC deems liable in the event of a status challenge. This helps safeguard the entire contractual chain—client, agency, and contractor—against the financial risks of a tax tribunal.
With deep expertise in contractor management and a proven track record across multiple sectors, Nigel Wright is ideally positioned to support organisations and individuals through this period of regulatory change.