Change to small companies’ definition: Immigration implications

The Government has announced that from 6 April 2025, there will be an increase to the monetary size thresholds for micro, small and medium size entities. These changes will impact both companies and limited liability partnerships alike and in the lead up to the change, we have summarised how this will impact sponsors, particularly in respect of their sponsor compliance reporting obligations.

Currently, section 382(3) of the Companies Act 2006 states that a company is considered as ‘small’ in a tax year in which it satisfies two or more of the following requirements:

• Its annual turnover is not more than £10.2 million
• Its balance sheet total is not more than £5.1 million
• It has not more than 50 employees.

Where a company or LLP is part of a group, it will only be small if its parent also qualifies as small (the figures for all members of the group worldwide are aggregated to assess this).

Forthcoming changes being made by the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 will see the legislation updated, so that the turnover and balance sheet thresholds for a ‘small’ company will increase from 6 April 2025 as follows:

• Annual turnover is not more than £15 million
• Balance sheet total is not more than £7.5 million.

A company would cease to be considered as ‘small’ if it fails to meet the small company definition for two consecutive financial years. There is a transitional provision in the new legislation, so that when a company’s size is considered by reference to a previous financial year, the amended thresholds are treated as also having applied in those previous years.

The increase in the thresholds will therefore see entities being reclassified into different size categories, for example those previously considered as ‘medium’ in size could drop into the ‘small’ threshold and so on. The Institute of Chartered Accountants in England and Wales has stated that it expects around 14,000 companies (and LLPs) to drop into the ‘small’ category.

What does this mean for sponsor licence holders?

Companies set to move down a size category and deemed a ‘small’ company from 6 April 2025 onwards, could benefit from a reduction in some of the costs sponsors are required to pay in the visa application process, including:

• The sponsor licence application fee: which from 9 April 2025 will be £574 for small sponsors (compared to £1,579 for medium/large sponsors)
• The Immigration Skills Charge: £364 for small sponsors (compared to £1,000 for medium/large sponsors).

Beware the risks

With this benefit, it’s also important to note that any significant changes to a sponsor’s organisation must be reported to the Home Office within 20 working days of the change and this includes a change in company size.

With recent statistics showing an unprecedented rise in sponsors having their licences suspended or revoked, the stakes have never been higher. Failure to act in compliance with your sponsor licence obligations, including reporting significant changes, could result in Home Office enforcement action.

Other implications

Any companies moving into the small category will also:

Be entitled to the associated reduction in reporting and audit requirements and exempt from the requirement to produce a strategic report and undertake a statutory audit of their annual accounts.

Cease to be subject to the IR35 /off payroll working rules, meaning they will no longer be responsible for determining the employment status (for tax purposes) of contractors who provide services to them through a personal service company or other intermediary.

Contact us

For further information on how we can support you with any potential organisational changes and sponsor reporting implications, or for corporate or IR35 issues, please contact a member of our Immigration, corporate or employment law teams or submit an enquiry form, below.