If you’re looking for an exciting, adrenaline fuelled adventure this summer then you've come to the right place.

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Yes, that's right, our guide to 2025 IR35 legislation updates is finally here!

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OK, it may not be a thrill-seeker's number one activity, but if you’re a contractor, freelancer, or business hiring off-payroll workers, it’s one you really can’t afford to ignore.

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As the off-payroll working rules -better known as IR35 - have caused plenty of confusion (and controversy) since they were first introduced. 

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So it's time to clear things up, and explain all you need to know about the latest changes to IR35. So you can tackle this  2025/26 tax year's wildest adventure with confidence!

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Quick recap - what is IR35?

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IR35 is a set of tax rules designed to determine whether a contractor is genuinely self-employed or essentially working as an employee in disguise. 

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It's intended to stop people from avoiding employment taxes by providing services through a limited company (often called a Personal Service Company or PSC), while still working like a full-time employee.

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The key distinction is whether you fall inside IR35 or outside IR35:

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Inside IR35 - You’re effectively treated as an employee for tax purposes. This means paying Income Tax and National Insurance similar to someone on payroll.

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Outside IR35 - You’re seen as a genuine contractor running your own business, so you have more flexibility over how you pay yourself (and potentially lower tax bills).

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In recent years, the focus has shifted from contractors to the businesses that hire them. The off-payroll working rules, rolled out to the public sector in 2017 and the private sector in 2021, mean that for many contractors, it’s now the client who decides your IR35 status, *not you.

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*(If the end client was small or overseas, then the PSC was still responsible for the IR35 determination)

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What’s changing in 2025?

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With IR35 already causing a fair bit of stress for contractors and businesses alike, the government’s 2025 changes aim to “improve compliance and reduce complexity”.  At least, that’s the idea.

So what’s actually changing?

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Here’s a quick summary of the key updates to the off-payroll working rules from April 2025.

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Double taxation will be addressed:

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Previously, if a client wrongly classified a contractor as ‘outside IR35’ and HMRC disagreed, the client could be liable for the full PAYE bill - even if the contractor had already paid tax via their limited company. 

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From April 2025, HMRC will take into account the tax already paid by the contractor when calculating any liabilities. This is a major relief for businesses who feared being taxed twice for the same engagement.

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Clarification around liability:

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The new rules are expected to tighten up how and when liability for unpaid tax is transferred between parties in the contractor supply chain, particularly relevant where umbrella companies or agencies are involved.

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Greater transparency for contractors:

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There’s a push for more clarity around status determination statements (SDS), ensuring contractors better understand how and why their IR35 status was decided.

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While these changes won’t overhaul the entire IR35 framework, they’re designed to plug some frustrating gaps and make the system fairer, especially for clients who’ve struggled with the risks of getting things wrong.

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Company size thresholds:

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Previously, a company with £10.2 million was classed as small and PSCs with end clients that had the £10.2m turnover had to determine if their own companies fell within IR35.

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Now, the turnover threshold has increased to £15m which means that some PSCs who would have previously not had to make their own determination, now have to do.

Who will be affected by the 2025 IR35 changes?

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The 2025 IR35 changes won’t impact everyone in the same way, but if you’re involved in off-payroll working, there’s a good chance you’ll feel the effects in some form. 

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Contractors working through a limited company (PSC)

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If you provide services through your own limited company, these changes could influence how clients assess your IR35 status, and how disputes or liabilities are handled. You may also benefit from greater transparency in status decisions.

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Medium and large businesses hiring contractors

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If you’re a client responsible for determining IR35 status under the off-payroll rules, the new measures (especially around tax offsets) could reduce your financial risk if HMRC decides a contractor was wrongly classed as ‘outside IR35’.

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Recruitment agencies and umbrella companies

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In supply chains with multiple intermediaries, liability and compliance responsibilities can get messy. The 2025 updates aim to clarify who’s responsible for what, potentially shifting risk and changing how contracts are managed.

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Small businesses

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If you’re a small company (as defined by HMRC), the IR35 rules haven’t applied to you in the same way since 2021, as you’re not responsible for determining a contractor’s status. That won’t change in 2025, but it’s still important to stay informed if you plan to grow or work with agencies.

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What the changes mean for contractors

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Most contractors operating through their own limited company might  be wondering whether the 2025 IR35 changes are good news or not? The answer is  a bit of both.

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You might see fairer outcomes if your status is challenged

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One of the most welcome changes is that HMRC will now consider the tax you've already paid through your limited company if your client got your IR35 status wrong. This could reduce the overall tax bill in disputes, but it doesn’t mean contractors are off the hook entirely. It’s still important to ensure your working practices reflect your IR35 status.

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Clearer status determinations (hopefully)

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There's a push for more transparency around how clients decide whether you're inside or outside IR35. This could help you challenge incorrect decisions more effectively - and avoid being unfairly pushed into umbrella company roles.

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IR35 status is still out of your hands (in most cases)

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Unless you’re working with a small client, you won’t be the one deciding your IR35 status. That means it’s more important than ever to understand how clients assess roles, and to make sure your contract and day-to-day working practices align.

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You may want to review your setup

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With liability rules evolving and umbrella companies more prevalent, it’s a good time to review whether your current setup still works for you. Some contractors may prefer the control and flexibility of a limited company, while others might find umbrella companies offer more stability.

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What businesses and clients need to know

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If your business hires contractors, the 2025 IR35 changes are designed to make compliance a little less painful, but there are still key responsibilities you can’t afford to overlook.

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The liability risk is shifting slightly - but not disappearing

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Thanks to the new offset rules, if HMRC decides you got a contractor’s IR35 status wrong, you won’t necessarily face a double tax bill. That’s a big relief. However, you’ll still be responsible for any remaining tax liabilities, interest, and possibly penalties. Getting status determinations right remains essential.

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You still need to issue clear Status Determination Statements (SDS)

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Every time you hire a contractor through a limited company, you must assess their IR35 status and provide an SDS that explains your decision. The 2025 changes are expected to place more emphasis on clarity and communication, so vague or templated responses won’t cut it.

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You should review your supply chain

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If you work with recruitment agencies or umbrella companies, make sure everyone in the chain understands their responsibilities. The upcoming changes may influence how liability is shared, so contracts and compliance processes should be reviewed well before April 2025.

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Training and tools can make a big difference

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Don’t leave IR35 compliance to guesswork. Invest in proper training for hiring managers and use trusted tools to help assess contractor status. 

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Want to save yourself mountains of time, money and stress with IR35? Then using Crunch’s expert service is well worth the investment! Try it today.

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IR35 2025 updates - an improvement, but not perfect…

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The IR35 changes in 2025 aim to fix some long-standing frustrations, but they don’t remove the complexity entirely. Whether you’re a contractor or a client, staying informed and proactive is key to avoiding unwanted surprises.

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If you’re still not clear on  how the changes affect you, our expert team at Crunch is here to help. From IR35 reviews to limited company support and umbrella advice, we’ve got your back, so you can focus on doing what you do best.

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