Upcoming changes to company size thresholds and the impact on IR35 Rules: What you need to know!
Recent updates to company size thresholds could have important consequences for how businesses manage their off-payroll working responsibilities, particularly under the IR35 framework.
From 6 April 2025, the financial size criteria used to determine whether a company is classed as medium or large for the purposes of off-payroll working will increase to align with the audit thresholds. This reclassification could mean that fewer organisations fall under the scope of the off-payroll rules—but conversely could mean some Personal Service Companies now becomes responsible for their tax status.
Company thresholds – what’s changing?
Until now, a company is considered medium or large if it meets at least two of the following three criteria:
- Annual turnover above £10.2 million
- Balance sheet assets over £5.1 million
- More than 50 employees
From accounting periods starting after 5 April 2025, the thresholds will increase to:
- Turnover of £15 million
- Assets of £7.5 million
- The 50-employee threshold remains unchanged
Tim Humphries, Tax Partner at RPGCC, added: “This shift will eventually reduce the number of businesses required to assess and apply the off-payroll working rules. But we advise clients not to assume they’re immediately off the hook, these changes take effect only after a company has fallen below two of the thresholds for two consecutive accounting years. So realistically will not come into play until 2027”
That means for most businesses, the earliest the new classification will apply for IR35 purposes is the 2027/28 tax year.
Company thresholds, who’s affected and what does it mean?
If a business no longer meets the updated size thresholds, it will no longer be required to assess worker status or operate PAYE for contractors. Instead, responsibility for determining employment status will shift back to the contractor or their intermediary, under the original intermediaries legislation.
However, companies that do remain within the scope of the off-payroll rules face substantial obligations, including:
- Reviewing contractual arrangements to identify whether IR35 applies
- Assessing the contractor’s employment status
- Issuing a Status Determination Statement (SDS) to both the contractor and any agency involved
- Establishing a dispute resolution process and responding within statutory deadlines
Failing to meet these obligations could result in the business being liable for unpaid Income Tax and National Insurance Contributions, making careful compliance essential.
“At RPGCC we always stress the importance of taking ‘reasonable care’ when determining employment status,” Tim Humphries adds. “HMRC can and will pursue businesses if they believe the correct processes haven’t been followed.”
What should businesses do now to prepare and the impact on IR35?
Businesses should:
- Monitor their size metrics to see if they are likely to fall out of scope in the next few years
- Review and update policies around engaging contractors
- Seek professional advice to ensure they remain compliant
It is also advisable to notify any contractors working for you that you are no longer medium-sized so that they become aware that the obligation has now fallen back on them to self-assess whether IR35 applies.
Although it may be tempting to assume these changes are too far off to worry about, companies that act early will be in the best position to avoid future disruption or penalties.
The impact on Contractors and Workers and IR35
In the short term, little will change for contractors. However, as more businesses fall outside the scope of the off-payroll rules over time, more responsibility will fall on those who operate through personal service companies (or other equivalent structures).
Contractors should:
- Reassess their engagement terms
- Use HMRC’s Check Employment Status Tool (CEST) where relevant
- Consider professional advice, particularly if their circumstances are complex
It is worth noting that self-employed individuals will not be impacted. It is, and always has been, the responsibility of the engager to determine if you are an employee or not and operate PAYE accordingly regardless of size.
If you would like to read more about off-payroll working you can visit HMRC’s website here.
Do you need help navigating IR35 or understanding your company’s obligations?
RPGCC’s tax team is here to support you through these evolving requirements. Get in touch with your usual contact or reach out to our IR35 specialists today.
