IR35 Changes from April 2025: What Clients and Contractors Need to Know

IR35 Changes from April 2025: What Clients and Contractors Need to Know

From 6th April 2025, significant changes to the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 will come into effect. These changes impact the definition of a "small company", a key factor when it comes to IR35 and off-payroll working rules.

New Definition of a Small Company

To qualify as a "small company," at least two of the following criteria must be met:

• Annual turnover: Not more than £15 million (up from £10.2 million)
• Balance sheet total: Not more than £7.5 million (up from £5.1 million)
• Number of employees: 50 or fewer (unchanged)

Why This Matters for IR35

The off-payroll working rules (IR35) currently apply to all public sector bodies and private sector businesses that are medium or large in size. These businesses are responsible for determining the IR35 status of contractors they engage and must provide a Status Determination Statement (SDS) to confirm this.

However, companies classified as "small" are exempt from this responsibility. For these businesses, the responsibility for determining IR35 status and paying the appropriate taxes remains with the contractor under the original 2000 IR35 regime.

Key Implications

With the new thresholds, an estimated 14,000 companies currently considered medium-sized will now be reclassified as small. This means:

• These companies will no longer have to assess IR35 status.
• The responsibility for IR35 compliance will shift back to contractors working with these clients.
• Contractors will need to ensure they meet all IR35 requirements from April 2026, as company size is determined based on the previous financial year.

Practical Considerations for Contractors

Although these changes won’t practically impact IR35 obligations until April 2026, contractors should prepare now. Here are three essential steps:

1. Get Clarity
    Confirm who is responsible for IR35 determinations for each assignment.
   
   
2. Understand Responsibilities
    Identify which party is liable for the IR35 status determination and tax payments.
   
   
3. Prepare for Compliance
    If your client will become a "small" company, prepare to handle your IR35 obligations independently.

The 45-Day Rule: Understanding Timelines

Contractors have the right to request confirmation of a client’s size. The client must respond within 45 days, with the deadline being the later of:

• 45 days from receiving the request, or
• 45 days before the start of the relevant tax year.

For example, a request made on 20th February 2025 must be answered by 6th April 2025 (the start of the new tax year).

What If a Client Doesn’t Respond?

Failure to confirm company size within 45 days can lead to legal consequences, with contractors able to seek court orders compelling disclosure.

Potential Upsides for Contractors

These changes may benefit contractors by providing:

• Greater control over their own IR35 status, reducing the risk of unfair blanket "inside IR35" determinations.
• Increased opportunities to work with end-hirers who previously avoided engaging limited company contractors due to the complexity of IR35 assessments.

However, this also means contractors must manage the full compliance burden, with HMRC likely to monitor how well this is handled.

Final Thoughts

While these upcoming changes shift the IR35 landscape, preparation is key. For clients, understanding how these new thresholds affect responsibilities is crucial. For contractors, now is the time to ensure you’re ready to take control of your IR35 obligations from April 2026.

At Driver Require, we are committed to providing our clients and drivers with clear, trustworthy advice. If you have questions about how these IR35 changes could impact you, we’re here to help. Reach out today, we’ll ensure you have the information you need to navigate these changes with confidence.