Changes to company size thresholds and their impact on off-payroll working

Changes are set to come to the Companies Act 2006, amending the company size thresholds which HMRC has confirmed will also apply to off-payroll working rules. 

Under the current off-payroll working rules, where the client or end user receiving a worker's services through an intermediary are considered medium or large, they are responsible for determining the worker's employment status. If the client decides the worker is a deemed employee, pay-as-you-earn and national insurance contributions must be applied. These rules have been in effect for all public sector clients since 6 April 2017 and for private and voluntary sector clients since 6 April 2021.

Changes to the Companies Act, starting 6 April 2025, are set to adjust the threshold at which a company will be described as ‘small’. Companies will be classified as such if they meet two of the three criteria listed below:

• Turnover no more than £15m (was £10.2m)
• Balance sheet totalling less than £7.5m (was £5.1m)
• Monthly average employees less than 50 (unchanged)

The thresholds in question are determined by the company’s previous financial year so any effect this has on off-payroll working will not be seen until 6 April 2026. Current medium to large sized companies which are due to be reclassified as small will have to continue to comply with the off payroll working rules as medium to large companies until they are officially reclassified. For those companies classified as ‘small’, the responsibility for assessing the employment status will remain with the worker’s intermediary. 

There will be no transitional arrangements in place and HMRC will be updating it’s own employment status guidance to reflect this change.
Businesses affected by such changes should be prepared and reviewing their status in advance. Ensuring that they are compliant with the off-payroll working rules remains a necessity for companies remaining in the classification of a medium to large company. Be sure to check in with PayStream as HMRC releases more guidance on this topic or contact us at IR35@paystream.co.uk.