News

The company size thresholds for Off Payroll Working will increase from April 2025. 

HMRC have confirmed that the thresholds for determining the size of an entity for Off-Payroll Working purposes will increase in line with the changes to financial thresholds for the Companies Act. This will result in changes to the number of medium and large entities required to assess their Contracors under the Off-Payroll Working rules.

What are the Off-Payroll Working Rules?

The Government introduced changes to the rules determining who are classified as “off payroll” workers in the public sector in April 2017. The rules were extended to cover all “medium2 and “large” businesses from 01 April 2021. The off-payroll working rules are similar to the IR35 tests and are frequently being referred to as “failing IR35”.

Previously the IR35 rules were applied and the decision determined by the contractor. Going forward the employment status for contractors is instead determined by the client (the “fee payer”).

Who does it affect?

The off-payroll working rules can apply if a worker provides their services through their own limited company or an intermediary to the client. Intermediaries can include:

• A Limited company, usually a Personal Service Company (PSC)
• Partnership
• Individual

Who is responsible for checking if a contract falls within Off-Payroll Working?

Were the body paying the Contractor is a ‘medium’ or ‘large’ sized entity, the Contractor’s client will determine if it believes that the contractor falls within the scope of the Off-Payroll Working rules. An entity must look at the last financial year for which the period for filing its accounts and reports ended before the beginning of the tax year concerned to determine whether it is a medium or large sized entity.

What is changing?

 From April 2025 the company size thresholds for Off Payroll Working will increase in line with the changes to the Companies Act announced on 09 December 2024. An entity will be medium or larged-sized from 06 April 2025 if it meets two of the following criteria:

·         Turnover of more than £15 million (increased from £10.2 million)

·         A balance sheet total of more than £7.5 million (increased from £5.1 million)

·         An average of more than 50 employees (no change)

 This may mean that some entities are no longer responsible for assessing the Contractor’s engagement. The responsibility for this will fall back to the Contractor.

To determine its size, the entity must look at the last period with a financial year end prior to the beginning of the relevant tax year.

Frequently Asked Questions about Off-Payroll working

How do I check whether the Off-Payroll working rules apply to my contract?

This can be done by using HMRC’s online “Check Employment Status for Tax” (CEST) tool. If the Contractor fails, the Employment Status Test then the body paying the contractor must deduct income tax (PAYE) and National Insurance (NI) and report the payment through the Real Time Information (RTI) system to HMRC.

What does it mean if I am classed as Off-Payroll working?

If the body paying the contractor deems that the Contractor fails, the Employment Status Test then the body paying the contractor must deduct income tax (PAYE) and National Insurance (NI) and report the payment through the Real Time Information (RTI) system to HMRC. THE PAYE and Employees NI is calculated on the net invoice value and the amount net of tax paid to the contractor’s business. The Contractors business then accounts for the deductions in its financial statements.

If I have PAYE and NI deducted, do I have employee rights?

No. Although PAYE and NI will be deducted the Contractor will not have any employment benefits such as Statutory Sick Pay, Pension etc.

Will this legislation affect me if I am employed through an umbrella payroll?

No. Umbrella Payroll companies are not regarded as Personal Service Companies and are not affected by the legislation.

Could I work through my Limited company and through the off-payroll system?

Yes. You can have multiple contracts during a tax year which are paid in different ways, i.e. one contract affected by the IR35 public sector rules, and one contract unaffected.

If you would like to discuss any of the issues noted above and/or obtain an illustration of how this would affect you financially please contact us on 01244 625 500 or 01978 364 000 or via email at contactus@foremansllp.com