29th April 2025Off-Payroll Working Rules (IR35) – Updated Thresholds from 6 April 2025

Under off-payroll working rules, medium and large businesses engaging contractors must assess whether the engagement falls inside or outside IR35 and operate Pay As You Earn (PAYE) for those engagements which are considered ‘inside’ IR35.

The definition of a ‘medium or large’ entity changed from 6 April 2025, in practice this should mean less businesses are caught by the Off-Payroll obligations. Although this is unlikely to affect businesses for a while!

What are the current thresholds and what are the changes? 

Prior to 5 April, if a corporate business meets any two of the following thresholds, it will fall into the realm of the off-payroll working regulations:

• Turnover exceeding £10.2 million
• Total assets of £5.1 million
• More than 50 employees

For accounting periods beginning after 5 April 2025, the thresholds will be raised to:

• Turnover of £15 million
• Total assets of £7.5 million
• Employee count remaining at 50

Some corporates that are currently subject to off-payroll working rules are expected to fall below the medium or large company threshold, removing their obligation to comply with these regulations. However, this may take some time as a company must fail to meet two of the three conditions for two consecutive financial years.

For off-payroll working purposes, a financial year is an accounting period with a reporting date prior to the tax year in question. This means that for a lot of corporates the earliest that the thresholds will be considered will be the 2027/28 tax year!

In the long run, fewer clients are expected to meet the criteria for the off-payroll working rules, meaning they will not need to comply with the burdensome obligations imposed by the off-payroll working regime – outlined below. Instead, their engagements will continue to fall under the Intermediaries Legislation where the responsibility to assess remains with the workers intermediary.

Impact of meeting the size thresholds

The off-payroll working rules impose burdensome obligations on the client and failure to meet these can result in them becoming responsible for any underpaid PAYE and NICs. These include:

1. Understanding the contractual chain to determine if the rules apply – the client must understand the structure of contracts to determine if the IR35 rules apply, especially when there are multiple entities involved in the contract chain.
2. Determine the status of the worker – the client must review whether the individual is ‘inside IR35’ or ‘outside IR35.’ If the worker is ‘inside IR35,’ the client is required to operate PAYE.
3. Issue a Status Determination Statement (“SDS”) – the client must issue an SDS and this details the workers IR35 status. This determination must be passed to the worker and any party the client engages with.
4. Implement a dispute process – the client must be able to respond to any representations put forward by the worker or any other entities in the chain within 45 days.

The above obligations are underpinned by the need for the client to demonstrate they have taken reasonable care throughout – again failure to do so could result in the client being liable for any under deductions of PAYE or NIC.

What should businesses do?

Businesses should continue to monitor the thresholds to track their size. Where a business falls in or out of the scope of off-payroll working, they will need to adjust their policies to ensure the remain compliant with the relevant legislation that applies to them.

If any businesses are unsure whether the off-payroll working rules apply, they should seek professional advice.

Key tax implications for workers

In the main, very little will change for workers in the short term. As explained above, these new thresholds will not impact businesses and therefore trickle down to the worker for a while.

In the long term, as more end clients are considered small, more workers will need to self-assess their employment status under the Intermediaries legislation. Thus, pushing the burden of away from the client and onto the worker.

Workers who do fall within the Intermediaries legislation need to carefully consider their status and it is recommended that they utilise HMRC’s Check Employment Status Tool (CEST) and seek professional advice when doing so.