Under the current off payroll working rules, the client or end user receiving a worker’s services via an intermediary is responsible for determining the worker’s employment status. If the client determines that the worker is a deemed employee, pay as you earn and national insurance contributions need to be operated.
The rules have applied to:
- all public sector clients since 6 April 2017; and
- medium and large-sized private and voluntary sector clients since 6 April 2021.
The thresholds for determining the size of a company for these purposes are contained within the Companies Act 2006.
The financial thresholds are increasing with effect from 1 April 2025. From that date, a private company or organisation will be considered small if two out of the three following conditions are met:
- turnover of not more than £15m (increased from £10.2m);
- balance sheet total of not more than £7.5m (increased from £5.1m); and
- monthly average number of employees – 50 (no change).
For the purposes of the off payroll working rules, a company’s size is determined by reference to its previous financial year end and for the duration of a tax year. Therefore, the company size threshold changes will have no practical impact for off payroll working until 1 April 2026 at the earliest.
Existing medium and large sized clients will still need to ensure they comply with the off payroll working rules until they are no longer considered medium or large. For end user clients who are small, or will subsequently be reclassified as small, the responsibility to assess the engagement will remain or revert to the worker’s intermediary or personal services company.
No transitional arrangements are envisaged. HMRC has confirmed that it will update its employment status guidance manual in due course to reflect the changes.
Further information
- For detailed guidance, see ICAEW’s hub: Off-payroll working and IR35
- The recent ICAEW article UK company size thresholds to increase sets out the changes to the Companies Act 2006
- HMRC’s employment status manual explains the meaning of medium-sized and large for these purposes at ESM10006
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