Small company threshold changes and IR35 rules

Small company threshold changes

A company must meet certain conditions to be considered ‘small’, and from the 6th of April 2025, changes made to the Companies House (Accounts and Reports) (Amendment and Transitions Provision) Regulations 2024 will lead to the increase of two key thresholds that determine what counts as a small company.

These are as follows:

• A turnover of no more than £15 million (this has increased from £10.2 million)
• A balance sheet total of no more than £7.5 million (increased from £5.1 million)
• A monthly average of no more than 50 employees (this is an unchanged figure)

As a small company, you are outside the scope of the off-payroll working rules (IR35).

IR35

IR35 is a legislation used to determine a contractor’s working status by looking at their levels of risk, liability and responsibility in the workplace.

You can either fall ‘inside’ or ‘outside of IR35.

If a contract shows that a worker has the same level of risk, liability and responsibility as other contractors, they will be seen as ‘outside’.

If, however, a contract is seen as being similar to that of a permanent employee, then the worker will fall ‘inside’, which means being subject to the same tax rates and National Insurance (NI) as an employee, which can consequently result in paying more than you would if you were outside IR35.

Your status will also have an effect on your self-employed benefits – you’ll be more limited when it comes to the type of expenses you’re allowed to claim back on.

Read our Guide to IR35 page for more information on the legislation.

Before April 2021, all contractors would work out their own status, however, it is now the responsibility of the client to make that decision – unless they are a small company.

What do I need to know about small company threshold changes and IR35 rules?

As a result of these changes, thousands of firms will end up in a different business size category.

The government has estimated that there will be around 14,000 businesses moving from medium-sized to small, which means those who were responsible for assessing and managing IR35 will now transfer this duty to their contractors.

However, while this comes into force in April 2025, companies won’t experience any of these IR35 changes until the following year – this is because a company’s size is determined by its previous financial year-end (with regard to IR35) and this lasts a whole tax year.

So, while there are no practical changes for now, it’s worth business and contractors preparing themselves sooner rather than later.

For example, if you are hiring a contractor on an ongoing basis, it’s best to start having those conversations about IR35 responsibilities before they come into effect so that everyone involved understands their obligations.

We hope you found this page helpful. Our team of experts are available to answer any questions you may have, so either contact us via online chat, call us on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.