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Small Company Thresholds and IR35: What the 2025 Changes Mean for You

IR35 and the off-payroll working rules continue to evolve, and a key update is coming into play from 6th April 2025 – one that could affect thousands of businesses and the contractors they engage.

HMRC has confirmed that changes to the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 will increase two of the qualifying thresholds used to define whether a business is a “small company.” This has a knock-on effect on who carries responsibility under IR35.

So, what’s changing – and what do you need to do?

The New ‘Small Company’ Criteria – from April 2025

To qualify as a small company (and therefore be exempt from the off-payroll working rules), a business must meet two out of the following three conditions:

  • Annual turnover not more than £15 million (up from £10.2 million)
  • Balance sheet total not more than £7.5 million (up from £5.1 million)
  • No more than 50 employees (this remains unchanged)

This matters because “small” end-hirers are not responsible for determining the IR35 status of their contractors. Instead, that responsibility reverts to the limited company contractor, as per the original IR35 legislation introduced in 2000.

Who Will This Impact?

These changes are set to benefit around 14,000 companies that may move from being classified as medium-sized to small. For these companies, the responsibility for IR35 compliance will transfer away from them and back to the contractors they engage.

However, it’s important to understand when this transition kicks in.

When will the IR35 Responsibility Actually Shift?

For IR35 purposes, the size of a company is determined based on the previous financial year, and a company must meet the small company criteria for two consecutive financial years before the exemption applies.

In practical terms, this means that:

  • The earliest tax year when this change will apply is 2027/28.
  • For example, if a company has a financial year ending 30th April 2025 and again on 30th April 2026, and both years meet the new small company thresholds, the earliest IR35 exemption will be from 6th April 2027.

What Should Businesses and Contractors Be Doing Now?

For businesses:

  • Begin assessing whether your size may change under the new thresholds.
  • Keep a clear, auditable record of company size and notify contractors accordingly.
  • If you’re likely to shift to “small,” be ready for the implications – including ensuring your contractors understand the change in responsibility.

For limited company contractors:

  • You may soon be back in charge of determining your own IR35 status.
  • Understand your obligations and start preparing now – especially if your end-client may be reclassified as a small company in the coming years.
  • Use your right to formally request confirmation of your client’s size. Your end-client must respond within 45 days.

IR35 Tip: Get Clarity Early

Knowing who is responsible for IR35 assessments on each engagement is crucial. This clarity ensures the correct party is managing tax, risk, and compliance – avoiding confusion or disputes down the line.

Need Support?

If you’re a business or a contractor affected by these upcoming changes, now is the time to get expert advice. Brookson Legal can help you understand your obligations, prepare for the transition, and remain compliant with confidence.

Read More in Our Latest Press Piece

Our Managing Director, Matt Fryer, shares deeper insights on these changes and what they mean for contractors and end-hirers in our latest editorial.
👉 Read the full article here