Off-payroll working: change to company size thresholds

The government is changing the thresholds that determine company size, in a bid to cut red tape impacting businesses. As company size plays a key role in compliance with the off-payroll working and IR35 rules, the change will also have a knock-on effect here.

New thresholds

The new rules alter the thresholds set out in the Companies Act 2006, and are expected to benefit up to 132,000 companies, by moving them into categories with lighter-touch accounting and reporting requirements. The new thresholds take effect from 6 April 2025. 

Previously, a company was classed as being small if it met at least two of these tests for two consecutive financial years:

• it had turnover of not more than £10.2 million
• it had a balance sheet total of not more than £5.1 million
• it had an average of not more than 50 employees.

Under the new rules, a company is classed as small if it meets at least two of the following tests:

• it has turnover of not more than £15 million
• it has a balance sheet total of not more than £7.5 million
• it has an average of not more than 50 employees (unchanged).

Company size and off-payroll working

Off-payroll working rules apply where the client of someone working through an intermediary, such as a personal service company, is in the public sector; or is classed as a medium or large-sized client in the private or voluntary sector. Under the off-payroll working rules, it is the responsibility of the client to make the employment status decision. Where it is decided that the worker is a deemed employee, the client is then likely to have responsibility for PAYE deductions and National Insurance contributions, unless the supply chain is such that another party is the deemed employer.

Where services are provided to what is defined as a small client, the IR35 rules apply instead, and it falls to the worker’s intermediary to make the employment status decision.

In all cases, it’s the company size as set out in the Companies Act 2006 that is the measuring rod.

How the new rules impact this: and when

Those working through an intermediary may therefore find that some of their clients fall into a different size category in future. Where a client falls into the small company category, the responsibility for assessing employment status will also change, and the decision will pass to the worker’s intermediary/personal service company.

But although the new rules on company size have legislative effect from 6 April 2025, in terms of what it means for off-payroll working, it’s slightly different. This is because of the way the two sets of rules mesh together. Since off-payroll working rules kick in from the start of the tax year after the financial year end, the new rules on company size are in fact unlikely to bring change to off-payroll procedures until the year beginning April 2026, and in most cases, April 2027.

Client companies reclassified as small will be able to look forward to a reduction in the admin burden. Those working through an intermediary need to be aware that change and new responsibilities could be on the horizon. Do talk to us to help prepare for what lies ahead.