HMRC has confirmed that the increased company size thresholds applying from April 2025 under the Companies Act will also apply to the Off-Payroll Working rules.
Background
Under the Off-Payroll Working rules, the client or end-user must determine the employment status of workers who provide their personal services via an intermediary. This applies to:
- Public sector engagements from 6 April 2017.
- Private sector engagements by large or medium-sized end-clients from 6 April 2021.
When determining whether an entity is medium or large for these purposes, the thresholds in the Companies Act 2006 are used.
On 9 December 2024, regulations were made to increase the Companies Act size thresholds for financial years beginning on or after 6 April 2025. Thereafter, an entity will be medium or large-sized if it meets at least two of the following criteria:
- Turnover of more than £15 million (currently £10.2 million).
- A balance sheet total (assets) of more than £7.5 million (currently £5.1 million).
- An average of more than 50 employees.
HMRC's announcement
HMRC have confirmed that the April 2025 changes to the financial thresholds for Companies Act purposes will also apply for Off-Payroll Working.
HMRC will update its employment status guidance manual in due course.
For Off-Payroll Working purposes, when considering the size criteria, an entity must look at the last financial year for which the period for filing its accounts and reports ended before the beginning of the tax year concerned to determine whether the tests are met.
The Institute of Chartered Accountants in England and Wales (ICAEW) point out that:
- 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.
Useful guides on this topic
Off-Payroll Working: PSCs & Private Sector Engagers
What is Off-Payroll Working? Who does it apply to? What are the rules?
Off-Payroll Working: PSCs & Public Sector Engagers
The 'Off-Payroll Working' rules move IR35 and the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees, away from the worker's company to the End-Client in the labour supply chain.
What is a small or medium-sized company?
What is an SME? What size is a small company under the Companies Act? What size is a micro company? What size are Medium and Large companies?
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