From 6th April, 14,000 medium-sized firms will be reclassified as small, relieving them of the off-payroll working rules
Incoming changes to company size thresholds will expand the ‘small’ business criteria, meaning approximately 14,000 medium-sized businesses will no longer be responsible for managing the controversial off-payroll working rules.
The knock-on effect is that contractors they engage will, in time, become responsible for determining their IR35 status again and also liable. The changes have been welcomed for their potential to remove a “burdensome hurdle” by one IR35 specialist at the insurance firm Kingsbridge.
Revised company size thresholds
The forthcoming changes are documented in The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024. The updated thresholds, effective from 6th April 2025, are as follows:
| Company Size | Turnover (£) | Balance sheet total (£) | Average no. of employees |
|---|---|---|---|
| Micro | Up to 1 million (previously £632,000) | Up to 500,000 (previously £316,000) | Up to 10 (unchanged) |
| Small | Up to 15 million (previously £10.2 million) | Up to 7.5 million (previously £5.1 million) | Up to 50 (unchanged) |
| Medium | Up to 54 million (previously £36 million) | Up to 27 million (previously £18 million) | Up to 250 (unchanged) |
A company is classified into a category if it meets at least two of the three specified criteria. These adjustments aim to account for inflation since the previous thresholds were established in 2013, and to reduce the reporting burden on companies.
Impact on off-payroll working rules
Since their introduction to the private sector in 2021, the off-payroll working rules have been a source of controversy.
With businesses tasked with both the requirement of assessing IR35 status – and tax liability for incorrect determinations – many contractors have found themselves placed inside IR35 or instructed to operate via an umbrella company by their engager.
In such arrangements, the contractors are placed on the payroll and taxed as if they were employees, rather than genuinely self-employed.
However, as reported by the Institute of Chartered Accountants in England and Wales (ICAEW), this incoming measure is expected to result in around 14,000 medium-sized businesses being recategorised as ‘small’.
This is a positive development for those businesses as much as it is for contractors, says Fasad Asgar, Technical Manager in the ICAEW’s Corporate Reporting Faculty function.
“We are pleased to see the current government follow through with the previous government’s plans to increase the company size thresholds and streamline other non-financial reporting requirements,” Asgar said.
“Ensuring proportionality and removing duplicative reporting requirements is an important first step towards a modernised model for UK corporate reporting.”
Speaking in October last year about the planned change, another ICAEW spokesperson, Kate Beeston, said the body welcomed the changes.
“We are pleased that the government will be consulting on further measures to refresh and rationalise current reporting requirements,” Beeston said. “ICAEW has long been calling for the UK government to review the underlying legislative framework”.
Timeline
For the purposes of the off-payroll working rules, a company’s size is determined based on its previous financial year’s figures.
Therefore, the practical implications of these threshold changes on IR35 responsibilities will take effect from 6th April 2026.
This means that businesses reclassified as small from April 2025 will see the shift in IR35 compliance obligations starting in the 2026/2027 tax year.
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