Autumn Budget 2026: IR35, Contractor Tax and Recruitment Agency Changes Explained
28th October 2026 | Updated following publication of the official Budget documents
The UK Autumn Budget 2026 has now been published, providing clearer answers for contractors, recruitment agencies, consultancies and businesses that engage flexible workers.
Chancellor John Healey has announced changes to trading income, mileage allowances, employment costs, company taxation and HMRC administration.
Crucially, however, the official Budget report and accompanying HMRC tax-policy document contain no announced reform to IR35 or the off-payroll working rules.
For organisations operating in contractor supply chains, the distinction matters: some measures are new, others are already in force, and several will not take effect until 2027, 2028 or 2029.
IR35: No New Reform Announced in Budget 2026
Despite continuing industry calls for an IR35 reset, the government has not announced changes to employment-status tests, Status Determination Statements (SDS), fee-payer liability or the off-payroll working framework.
That is not the same as a guarantee that future reform is impossible; it means no such change has been announced in this Budget.
The existing rules therefore remain central to contractor engagements.
In general, medium and large private-sector end-clients and public authorities must assess the status of workers supplied through personal service companies, take reasonable care and issue an SDS.
For engagements with qualifying small private-sector clients, the intermediary generally retains responsibility for applying the relevant IR35 rules.
Recruitment agencies, consultancies and end-clients should continue documenting contractual terms and actual working practices, retaining evidence of status decisions and reviewing arrangements whenever assignments materially change.
Blanket determinations without proper individual consideration create avoidable compliance risk.
Umbrella Company PAYE Liability: Important, But Not a New Budget Measure
The joint-and-several-liability rules affecting labour supply chains using umbrella companies took effect on the 6th April 2026.
They can expose a recruitment agency or, in certain direct-engagement arrangements, an end-client, to unpaid PAYE liabilities connected with a non-compliant umbrella company.
This reform predates the October Budget.
Agencies should nevertheless treat umbrella due diligence as an ongoing priority: check supplier structures, payroll processes, payslip transparency and contractual arrangements, and monitor compliance rather than relying solely on initial accreditation or assurances.
The rules do not automatically mean every contractor should stop using umbrella employment.
New Tax Changes for Contractors and Sole Traders
Trading Allowance rises to £3,000 from April 2027
From the 6th April 2027, the Income Tax Trading Allowance and associated Self Assessment trading-income reporting threshold will rise from £1,000 to £3,000.
This could simplify tax administration for individuals with modest qualifying trading or miscellaneous income, including some freelancers with small side activities.
It is not however a £3,000 tax-free dividend allowance, nor does it directly exempt profits earned by a contractor’s limited company.
Savings and property income rates increase
From the 6th April 2027, the savings-income and property-income tax rates will be 24%, 44% and 49% across their respective basic, higher and additional bands, subject to the applicable territorial rules.
The Budget adds a further two percentage points to increases previously announced in 2025.
Contractors with significant taxable interest or personally held rental property should revisit their forecasts.
Dividend rates and the personal allowance
There is no newly announced increase to dividend tax rates in this Budget.
HMRC’s published 2027/28 tables retain rates of 10.75%, 35.75% and 39.35%, with a £500 dividend allowance.
The Personal Allowance remains £12,570.
The higher dividend rates that began in April 2026 should not be misreported as a new October 2026 announcement.
Business mileage and travel expenses
The Budget makes permanent the 55p-per-mile approved rate for the first 10,000 qualifying business miles in a privately owned car or van, introduced temporarily in April 2026.
It also raises the rate for mileage above 10,000 miles from 25p to 35p from the 6th April 2027.
Eligible employees and self-employed people using simplified mileage can benefit, but ordinary commuting remains subject to the usual restrictions.
From the 6th April 2028, employers will also see reformed domestic benchmark subsistence rates of £20 for travel exceeding five hours, £60 for over ten hours and £75 for over 24 hours.
The overseas scale-rate system will be simplified.
These are proposed implementation dates, not changes already operating today.
Recruitment Agencies: Wage Costs and PAYE Administration
The National Living Wage will rise by 3.9% to £13.21 per hour from the 1st April 2027, while the rate for workers aged 18–20 will rise to £11.27.
Recruitment agencies supplying lower-paid PAYE workers should assess the effect on assignment pricing, employer on-costs and contractual margin protections.
The government has not raised headline National Insurance rates in this Budget.
For 2027/28, the main Class 1 thresholds remain frozen, while the Lower Earnings Limit increases to £133 a week.
The standard employer National Insurance rate remains 15%, so agencies should not confuse unchanged headline rates with unchanged total employment costs.
From April 2029, businesses will generally be required to have Direct Debit instructions in place for VAT and PAYE return liabilities, subject to exceptions.
They may still pay earlier by other methods, with Direct Debit used for outstanding balances.
The government also plans mandatory VAT e-invoicing from April 2029.
Payroll and finance teams should allow for future systems changes.
Limited Companies: Distributions, Investment and HMRC Reporting
A potentially important future change for owner-managed businesses is the government’s plan to modernise the taxation of company distributions and repayments of capital.
Draft legislation is due for technical consultation in 2027, with implementation planned for April 2028.
The aim is to distinguish genuine capital transactions from arrangements designed to secure preferential tax treatment.
Contractors considering company closure, restructuring or extracting retained profits should obtain advice when the detailed rules become available.
The Budget also announces a new Capital Gains Tax Founders’ Relief from 6th April 2027: a 10% rate on up to £10 million of qualifying lifetime gains.
This is targeted at qualifying high-growth, innovative company founders; it should not be assumed to apply automatically to ordinary personal service company disposals.
For eligible innovative businesses, the government will remove the R&D tax relief Claim Notification Form for claims made on or after the 1st April 2027 and simplify supporting information later in 2027.
Amended Corporation Tax returns will have to be filed online from the 1st April 2028.
Making Tax Digital and HMRC Enforcement
The rollout of Making Tax Digital for Income Tax continues.
A new Budget easement means HMRC will not issue late-submission penalty points for quarterly updates in 2027/28 to taxpayers first required to join in April 2027.
Those taxpayers must still submit updates before filing their tax return. The underlying obligations have not been cancelled.
From April 2029, Self Assessment taxpayers who already make Payments on Account will move towards smaller, more frequent in-year payments.
Meanwhile, the Budget funds another 670 HMRC compliance officers, adding to previously announced recruitment.
This is a broader enforcement measure, not an announcement of a new IR35-specific investigation programme.
What Contractors, Agencies and End-Clients Should Do Now
Contractors should check their IR35 documentation, review 2027/28 remuneration and expense projections, and distinguish personal trading income from limited company income.
Recruitment agencies should update wage-cost models, audit umbrella suppliers and plan for future PAYE administration.
End-clients and consultancies should maintain evidence-based status assessments, clear SDS processes and suitable contractual controls.
Roots Contractor Insurance supports contractors and organisations across the supply chain through Professional Indemnity, Public Liability, Employers’ Liability and IR35 insurance, together with IR35 Status Reviews.
Specialist advice and appropriate protection can complement, though never replace, robust compliance procedures.
The central IR35 takeaway from Budget 2026 is straightforward: no reform was announced, but the wider tax and administrative landscape is changing.
Businesses that act early will be better prepared for the next implementation dates.
This article provides general information, not personalised tax, legal or insurance advice. Policy measures announced at the Budget may require legislation or subsequent guidance.
