Changes to off-payroll working rules - what does this mean for small UK companies?

The small company thresholds for compliance with the off-payroll working rules have been revised upwards. HMRC has confirmed to the Institute of Chartered Accountants for England and Wales that from April 2025, increased company size thresholds in the Companies Act 2006 will also apply for the purposes of the off-payroll working rules ('Rules'), meaning that some smaller organisations will fall outside the regime from the end of the April 2025/2026 financial year.

The Rules have applied to the public sector since 6 April 2017 and to medium and large-sized private and voluntary sector clients since 6 April 2021.  

The Rules oblige a medium or large end user receiving a worker’s services via an intermediary to determine the worker’s employment status ('employed' or 'self-employed') for tax purposes. If the end user determines that the worker is an employee, it must deduct PAYE and national insurance contributions from the worker's remuneration.

The size thresholds are set out in the Companies Act 2006 and will be increasing with effect from 6 April 2025, from which 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 Rules however, a company’s size is determined by reference to its previous financial year. Hence no actual change will be felt until 6 April 2026 at the earliest and organisations should continue to comply in the meantime until the reclassification takes effect.  After that, end users that are reclassified as 'small' may look to the worker's intermediary or personal services company to carry out the status determination.