Change to small companies’ definition could mean your business is no longer subject to IR35 rules


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Posted on 15 Jan 2025

Change to small companies’ definition could mean your business is no longer subject to IR35 rules

Large or medium-sized businesses who engage individuals who provide their services through an intermediary (such as a personal service company) will be interested in a forthcoming change which could mean that they will no longer be responsible for determining the individual’s employment status or for operating PAYE and paying employer National Insurance Contributions under the IR35/off payroll working rules. This is due to an increase to the turnover and balance sheet total thresholds for determining a company's size which could result in some businesses no longer being subject to the rules.

The size of the business engaged with the worker determines which party is responsible for ensuring compliance with the rules (although some companies, such as companies in the financial services and insurance industries, and public companies have to comply irrespective of size). If the business is small, the worker’s intermediary is responsible for determining whether the rules apply. Otherwise, the business must operate the rules.

Currently a company is small in a tax year in which it satisfies two or more of the following:

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

Under changes being made by the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 the thresholds will increase as follows:

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

There will be no change to the employee threshold.

The legislation’s explanatory notes confirm that the changes not only affect a company’s accounting obligations but also impact the application of the off-payroll working rules.

The changes have effect in relation to financial years beginning on or after 6 April 2025.

A small company ceases to be 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 considering a company’s size by reference to a previous financial year, the amended thresholds are treated as also having applied in those previous years.

Please get in touch if you think your business could be affected by the upcoming change or if you need further information about the IR35 and off-payroll working rules more generally.

Declan Bradley

Based in both the City and the UK's South West Declan is an Employment Lawyer with a focus on advising employers and senior executives across a range of industries including technology, media and finance. Declan has over a decade of experience as a UK lawyer, having worked at an international firm before joining Doyle Clayton in 2015.

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