Rumours have been circulating that IR35, the UK’s off-payroll working rules, might be scrapped. The truth is that IR35 remains very much in place, though it continues to evolve with new adjustments coming in 2025.

The rules were introduced to address a specific problem: individuals supplying services through their own limited companies (often called personal service companies, or PSCs) while working like regular employees. The aim is to ensure that those who operate like employees pay broadly the same tax and National Insurance contributions as employees, rather than benefiting from lower company tax rates.

So, if you’re a contractor, freelancer, or a business hiring external professionals, understanding IR35 and the latest changes is essential. This article explains the key developments and what they mean for you.

IR35 explained

At its core, the legislation asks a deceptively straightforward question: If you removed the limited company, would this individual effectively be an employee?

If the answer is yes, then the contract is said to be “inside IR35”, meaning employment taxes and NICs should be deducted at source. If the answer is no, it’s “outside IR35”, and the contractor can continue operating as a genuine independent business.

The determination hinges on three familiar principles:

• Control: how much say does the client have over what, how, and when the work is done?
  
• Substitution: can the contractor send someone else to complete the work?
  
• Mutuality of Obligation (MOO):  is the client obliged to offer work, and is the contractor obliged to accept it?

What’s actually changing in 2025?

Although IR35 itself is not being abolished, the application of the rules is shifting slightly, mainly due to changes affecting which companies must operate the off-payroll regime.

1. Raised “small company” thresholds

From 6 April 2025, the financial thresholds that determine what counts as a small company (and therefore exempt from the off-payroll rules) have been increased.

Under the current system, a company is classed as “small” if it meets two or more of the following conditions:

• Annual turnover no more than £10.2 million
• Balance sheet total no more than £5.1 million
• No more than 50 employees

From April 2025, those limits have risen to:

• Annual turnover no more than £15 million
• Balance sheet total no more than £7.5 million
• 50 employees (this limit remains unchanged)

This adjustment is part of a broader effort by the UK government to modernise small company definitions across the tax system.

Why this matters

These new thresholds mean that more businesses will qualify as “small”,  and therefore fall outside the scope of the off-payroll working rules.

For those clients, the responsibility for determining employment status (and any tax liabilities) will revert to the contractor’s own company, just as it was before the private-sector reforms of April 2021.

For some contractors, this will be a welcome simplification, offering greater autonomy and less administrative friction. For others, it means they must once again shoulder the full burden of making accurate IR35 determinations themselves, and the financial risks that come with getting it wrong.

2. Timing and transitional considerations

The change took effect on 6 April 2025, but it is important to note that its impact may not be felt immediately.

Under the Companies Act, an organisation must meet (or fail to meet) the small-company criteria for two consecutive financial years before its classification changes.

This means that for some businesses, the new thresholds may only influence their IR35 responsibilities from 2026 or 2027 onwards, depending on their accounting period.

In other words, don’t expect the floodgates to open overnight, the real-world impact will roll out gradually.

3. HMRC’s continued focus on compliance

While the rules are evolving, HMRC’s commitment to enforcing IR35 has not diminished. If anything, scrutiny has intensified.

The Check Employment Status for Tax (CEST) tool on GOV.UK was updated in spring 2025, and accompanying guidance has been refreshed several times throughout the year to reflect recent case law and clarify how determinations should be made.

Enforcement activity has also increased. HMRC has made clear that while it is “not out to punish genuine mistakes,” ignorance or repeated non-compliance will attract penalties and backdated liabilities.

So, although the threshold changes might ease the administrative load for smaller clients, the obligation to make accurate determinations remains as vital as ever for medium and large organisations.

Why do people think IR35 has been scrapped?

The confusion is understandable. Headlines announcing that “small companies are exempt” from off-payroll rules have been interpreted by some as suggesting that IR35 itself is being abolished.

In reality, what’s happening is a recalibration rather than a repeal.

• The off-payroll working framework remains in full force.
• The responsibility for compliance may shift in some cases, from client to contractor, depending on company size.
• The core employment-status tests (control, substitution, MOO) remain unchanged.

So yes, the rules are softening at the edges, but the regime itself remains alive and well.

What this means for you

If you’re a contractor or freelancer

• You may regain responsibility for determining your own IR35 status if your client now qualifies as a “small” company under the new thresholds.
• This gives you more control, but also more risk.
• Review your contracts, working practices, and documentation carefully. Ensure that the way you operate in reality aligns with the contractual terms that suggest independence.
• Demonstrate a genuine business-to-business relationship: multiple clients, financial risk, control over how you work, and the ability to substitute are all strong indicators.
• Consider seeking professional IR35 advice or an independent status review.

Remember that HMRC looks at the facts on the ground, not just the paperwork.

If you’re a hiring organisation or end client

• Assess whether the 2025 threshold changes will alter your classification.
  
  
• If you remain medium or large, your off-payroll responsibilities remain unchanged: you must issue a Status Determination Statement (SDS) for each engagement and apply PAYE/NIC where a contractor is deemed “inside IR35.”
  
  
• If you become “small,” the obligation to determine status passes back to the contractor, but you should still maintain good governance and ensure clarity in your contracts.
  
  
• Keep comprehensive records of decisions, correspondence, and assessments. HMRC expects a demonstrable audit trail.

If you’re an agency or intermediary

Agencies remain a critical part of the compliance chain. Even if your end clients fall outside the off-payroll regime, you could still be considered the “fee-payer” in certain cases, depending on contractual arrangements.

Review your client base and supply chain to identify where responsibilities may shift after April 2025. Proactive communication will be key to avoiding disputes and ensuring smooth transitions.

Common Questions

Q: If my client is small, am I automatically outside IR35?
A: Not necessarily. You’re still subject to the original IR35 tests; it just means you (not your client) must determine your status.

Q: Will this simplify things?
A: Potentially, for smaller companies, yes. But for contractors, it means the return of a heavier administrative burden and potential financial exposure if HMRC disagrees with your assessment.

Q: Could IR35 be scrapped entirely in the future?
A: There’s ongoing political debate, but as of late 2025, there are no confirmed plans to abolish or fundamentally replace IR35. The government appears focused on fine-tuning, not tearing down.

Has IR35 been scraped?

To summarise, IR35 has not been scrapped, and it is unlikely to disappear any time soon. The off-payroll working rules remain a central pillar of how the UK manages tax compliance for contractors, freelancers, and flexible workers.

From April 2025, more businesses qualify as “small” and therefore fall outside the private-sector off-payroll regime. However, the underlying legislation itself continues to apply in full. For contractors who find themselves once again responsible for determining their own IR35 status, this shift brings both greater autonomy and greater responsibility. It is essential to remain vigilant, well-informed, and fully documented in order to stay compliant and avoid unwanted surprises from HMRC.

While HMRC has signalled that it will take a pragmatic approach to enforcement, its focus on compliance remains firm. In this landscape, clarity, transparency, and good record-keeping are more valuable than ever.

The smart move is to understand its quirks, prepare accordingly, and keep your financial affairs watertight.

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