Off-payroll working: new company size thresholds effective from April 2025

From April 2025, the UK government is changing the thresholds that define company size under the Companies Act 2006. The goal is to reduce administrative burdens impacting businesses. As company size is central to compliance with the off-payroll working and IR35 rules, the revised the revised thresholds will also have a direct impact on how the off-payroll working rules (IR35) apply.

This revision may shift compliance obligations from client companies to contractors themselves, highlighting the importance for businesses and intermediaries to understand the forthcoming impact.

New thresholds: a shift in who qualifies as “small”

The new rules amend the company size thresholds as set out in the Companies Act 2006 —anticipated to benefit up to 132,000 companies, through lighter accounting and reporting requirements as of 6 April 2025. 

Previously, to be considered as a small company under the former rules, an organisation had to meet at least two of the following conditions for two consecutive financial years:

• Annual turnover not exceeding £10.2 million
• Balance sheet total not exceeding £5.1 million
• The employee limit of 50 employees on average remains unchanged

Under the revised rules, an business is deemed as small if it meets at least two of the following criteria:

• Turnover threshold is raised to £15 million
• Balance sheet total cap increased to £7.5 million
• The employee limit of not more than 50 employees remains unchanged.

Why company size matters for off-payroll working and IR35 compliance

Off-payroll working rules apply when a worker provides services through an intermediary (such as a personal service company), and the end client is either a public sector body or a medium/large organisation in the private or voluntary sector. Under these rules, the client bears responsibility for determining the worker’s employment status and managing any PAYE or NIC obligations if they are deemed to be an employee, unless the supply chain is such that another party is the deemed employer.

If, however services are provided to what is deemed as a small client, the off-payroll working rules do not apply. Instead, the responsibility for assessing employment status passes to the contractor’s own intermediary. This shift in who makes the determination is central to understanding the upcoming changes.

The definition of “company size” for these purposes is aligned with that in the Companies Act 2006—meaning the newly expanded thresholds will directly impact who the IR35 rules apply to.

How do the new rules impact this?

As a result of these changes, contractors operating through an intermediary may find that some clients are reclassified into a different size category. Where a client is newly classed as a small company, the responsibility for determining employment status will shift back to the contractor’s intermediary or personal service company.

When will these changes affect IR35 processes?

Although the legislative update takes effect in April 2025, its impact on IR35 procedures will unlikely be immediate. Here’s why:

Under off-payroll working rules, the company size used to assess status is based on the financial year ending prior to the start of the tax year in question. So, the new thresholds will begin influencing IR35 compliance from the tax year starting April 2026 at the earliest, and more typically from April 2027 for most businesses with a March year-end.

What this means for contractors and clients

For client companies newly classified as small, the change offers reduced compliance demands and a lightened administrative burden. For contractors working through an intermediary, they need to be aware of potential changes and responsibilities.

Both clients and intermediaries should prepare for this realignment in responsibility. Reviewing your current off-payroll arrangements and assessing where your clients or suppliers fall under the new thresholds is strongly advised.

Get in touch

Whether you’re a business looking to determine your size status or a contractor wanting to understand your future compliance obligations, we’re here to help you navigate these changes successfully, so please do get in touch.