The government has confirmed that significant changes will be made to two out of three threshold classifications for a ‘small company’. The thresholds for Annual Turnover and Balance Sheet Total will both be increasing, while Number of Employees remains the same.  

What does this mean? Many medium and large companies may now find themselves classed as a ‘small company’ instead. This shift will have a knock-on effect on IR35 (also known as off-payroll working rules) as the responsibility for determining the correct employment status will once again shift back to the contractor. 

Need a refresher on the meaning of outside IR35 and inside IR35? Find out all you need to know about IR35 rules here. 

New thresholds for small companies 

This table illustrates the changes between old and new criteria. To be classed as a small company, you must meet a minimum of two of the following criteria: 

	Pre 6th April 2025	From 6th April 2025
Annual Turnover	Max £10.2million	Max £15million
Balance Sheet Total	Max £5.1million	Max £7.5million
Number of Employees	No more than 50	No more than 50

How does this affect businesses and limited company directors?  

Currently, it is the responsibility of the medium or large sized company to determine the IR35 status of their contractors. The new thresholds could result in more companies falling under the ‘small company’ criteria, shifting the responsibility of determining IR35 back to the director of the limited company that is providing the work (end-hirer). 

In making changes to the Companies Act and increasing these thresholds, it is expected that over 10,000 businesses will transition to small company status. As a result, they will have significantly reduced their administrative workload, so it’s no surprise that medium and large companies set to be reclassified will likely welcome these changes with open arms. 

When will the new thresholds come into effect?

The rules may be changing on April 6^th 2025, however, we won’t see the impact of these changes until 6^th April 2026 at the earliest. This is because, when it comes to determining a company’s size for the purpose of off-payroll working rules, it is the previous financial year that is used as a reference. The upside of this is that businesses likely to be affected by the new legislation change have plenty of time to prepare.  

Impact on small companies 

It is important to note that companies classed as small under the threshold are exempt from determining IR35 status of the limited company workers they engage. Why? IR35 only applies to the public sector, and medium and large private sector end-hirers.  

In situations where the small company is deemed the end-hirer, IR35 status determination remains with the contractor. As such, existing companies classed as small will not be affected by upcoming changes and can continue to operate as usual. 

How can limited companies that employ contractors prepare? 

First thing’s first, it’s crucial to make sure you continue to operate compliantly and with consideration of existing rules. Until April 2026, it is still the limited company/employer’s responsibility to assess IR35 status, so it should not be expected that your contractors will dictate their position just yet. Equally, clients must not retain IR35 responsibility either. 

Secondly, it’s always best to get ahead and keep potential anxieties at bay. Businesses expecting to be reclassified under the new rules may find it beneficial to communicate this to their contractors sooner rather than later. Being pro-active and transparent about the situation will give employees a chance to adjust, as well as relieving the pressure of being inundated with queries if left to the last minute. 

How can limited company contractors affected by these changes prepare? 

Contractors in general won’t be affected by IR35, unless they work through a Personal Service Company (PSC). If this is the case, and the company will be reclassified as small come April, it’s paramount you start preparing to manage your own IR35 obligations.

While you won’t start carrying out the duties your end-hirer normally manages until the following financial year, beginning 6^th April 2026, familiarising yourself with what’s involved will save you future time and stress. For each individual assignment you undertake, you must clarify who is responsible for managing IR35 status determination and for paying tax to HMRC. Taking reasonable steps to assess each of your contracts is essential to avoid mistakes and penalties. 

Head to our IR35 Hub for more information. Packed full of blogs, insight, and definitions, it’s the perfect starting point. 

Seeking professional advice 

If in doubt, we recommend you always talk to a specialist. Whether you’re a limited company director unsure about how the new thresholds will affect you, or a contractor concerned about determining your own IR35 status, a qualified professional can help you make sense of things and give you peace of mind. 

Qdos are the UK’s leading IR35 specialists, with over 23 years of experience in the industry. If you’re a contractor checking IR35 status or an end hirer complying with off-payroll working rules, Qdos provide advice for contractors and businesses alike to ensure you remain operating compliantly. 

Contact Us 

Our team of expert accountants and tax specialists are always on hand to help. What’s more, we know IR35 like the back of our hand. Get in touch today if you have any questions. 

Keep an eye out on our blog for more upcoming content including Spring Statement updates, changes affecting limited companies and contractors, and key dates for the 2025/6 tax year.