The government is changing the thresholds that determine company size, and this will have a knock-on effect for off-payroll and IR35 rules too.
Clayton & Brewill explains more in the blog below.
What are the new thresholds?
The new rules alter the thresholds set out in the Companies Act 2006 and have been in place since 6 April 2025. These rules were expected to benefit up to 132,000 companies by moving them into categories with lighter-touch accounting and reporting requirements.
Previously, a company was classed as being small if it met at least two of these factors for two consecutive financial years:
- it had turnover of no more than £10.2 million
- the company balance sheet total was no more than £5.1 million
- there was an average of no 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 no more than £15 million
- the company balance sheet total is no more than £7.5 million
- there is an average of no 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 either 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. If it is decided that the worker is an 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 will 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 had legislative effect from 6 April 2025, in terms of what it means for off-payroll working, it’s slightly different.
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.
How we can help
If you would like to find out more information about the upcoming changes to off-payroll working and how they could affect your company in the future, please do not hesitate to get in touch with a member of the Clayton & Brewill team today.
