Size Does Count
The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (the “Regulations”) are the least thrilling 10 words you can start a blog post with.
However, many contractors caught within the IR35 Off Payroll Working rules will certainly be singing their praises thanks to the impact they have on off-payroll working.
Currently, where an organisation (the “Employer”) engages a contractor through their personal services company (“PSC”), it is the Employer who has the obligation to consider whether the off-payroll working rules apply to the engagement, and whether the contractor is a disguised employee. However, for “small” companies, the obligation to make this determination remains with the PSC, giving the contractor more control.
The Regulations change the thresholds for small companies. For accounting periods beginning on or after 1 April 2025, a small company is one which meets two of the following conditions:
a) annual turnover of no more than £15m (up from £10.2m)
b) balance sheet total of not more than £7.5m (up from £5.1m)
c) average of no more than 50 employees for the company’s financial year
To determine whether the exemption for small businesses applies to a tax year, the two consecutive financial years ending before the tax year in question are considered. Where two or more of the above requirements are met, then the business will be deemed to be small.
The Institute of Chartered Accountants in England and Wales estimates that around 14,000 currently “medium” sized businesses will be recategorised as small, meaning that the obligation to consider the off-payroll working rules will fall on the PSC rather than the business itself, giving more control and decision-making to contractors who will be able to apply the rules themselves rather than face having determinations imposed upon them.
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