HMRC has confirmed that changes to the company size thresholds in the Companies Act 2006 from April 2025 will also apply for the purposes of the off payroll working rules. Commonly referred to as IR35 OPW rules.
The off-payroll working reforms in Chapter 10 (OPW) apply to medium and large-sized private sector companies, the public sector and non-public sector organisation (this includes voluntary sector organisations such as charities). Those who contract with a small company which is the end client are required to comply with the old IR35 rules in Chapter 8. This means that the contractor is required to make the assessment and operate PAYE if the contract is inside IR35 rather than the end client/fee payer (if not the end client). The fee payer is the person in the contractual chain who engages with and is responsible for paying the worker’s intermediary.
From April 2025, the new thresholds will be:
– 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 OPW, a company’s size is determined by reference to its previous financial year end and for the duration of a tax year and so will need to be considered with almost immediate effect when trying to determine who will be responsible for managing any OPW obligations. Please note that organisations need to exclude any grant payments or levy receipts when considering the turnover test.
The changes are welcome, especially as no transitional arrangements are expected, consequently the increase may see many organisations excluded from the need to consider the OPW legislation. However, as mentioned above the onus will pass onto the worker to consider, under Chapter 8.
The OPW rules do not apply under the following circumstances:
– Payment of directors’ fees, which should be paid subject to the deduction of PAYE and Class 1 National Insurance contributions;
and
– Where individuals are engaged directly as a sole trader for the provision of their services.
For further information please contact a member of the Employment Taxes team
