IR35 ‘small company’ threshold rules are changing in April 2025 – Since April 2020, all medium and large sized businesses in the private sector that employ Contractors have been responsible for assessing the Contractors ’employment status’, if the individual works through their own Limited Company (or through other ‘intermediaries’).
You can read the background to this in our older post here, which has more details about how to determine an individual’s employment status.
However, this does not apply to ‘small’ companies (who do not have to assess their Contractor’s employment status) – but what is a ‘small’ company?
Since 2020 the definition of what makes a ‘small’ company has not changed, but the new Labour Government have recently announced that the thresholds will change on 1st April 2025.
Therefore, from 1st April 2025 the definition of a ‘small’ company for IR35 purposes will be:
Where the ‘client’ company satisfies 2 of more of the following requirements they will be deemed as ‘small’ and outside of this reform (i.e. not affected – so the Contractor will continue to make his/her ’employment status’ determination, and the Client will not have to):
- an annual turnover of not more than £10.2 million – this increases to £15 million from 1st April 2025;
- a balance sheet total of not more than £5.1 million – this increases to £7.5 million from 1st April 2025;
- and with a number of employees of no more than 50 (averaged over the year; only PAYE employees are counted who have a Contract of Service with their Employer; using the definition that is set out in section 382 of the Companies Act) – this does not change in April 2025.
- All Businesses will be ‘small’ in their first year (and will remain ‘small’ until they meet two of the above criteria).
The Government believe that the increase in these thresholds will result in approximately 14,000 companies changing from medium sized to small – so they will no longer be responsible for doing IR35 assessments on their contractors; nor will the companies be liable for unpaid PAYE and NIC’s.
A company’s size is determined by the position at the previous financial year end, so practically this will not have any impact until 1st April 2026. HMRC have said it will update the CEST (employment status guidance manual to reflect this).