The impact of changes in company size on off-payroll working

The 6 April 2025 changes to company size thresholds and upcoming UK GAAP lease recognition changes have important implications for off-payroll working (IR35) rules.

On 6 April 2025, the Government introduced updated thresholds under the Companies Act 2006, redefining how companies are classified as small, medium, or large. Under these updated thresholds, a company is now considered not small if it meets two of the following three criteria:

• Turnover over £15 million
• Balance sheet total over £7.5 million
• More than 50 employees

In isolation, the increase to these thresholds means that more companies may now qualify as “small” and be exempt from IR35 Off-Payroll Working rules (OPWR), under which it is the responsibility of the engaging entity to determine the status of the worker and withhold tax and NIC if appropriate. Consideration may therefore need to be given to what will happen if you cease to be within the OPWR.

However, it is important to also consider the new rules for recognition of leases under UK GAAP.

For accounting periods beginning on or after 1 January 2026, recognition of leases under FRS 102 is now more in line with IFRS 16, with a right-of-use asset and lease liability being recognised on the balance sheet, therefore increasing a company’s balance sheet total (gross assets). This change may push more companies closer towards, or even into, the medium and large company thresholds.

While this doesn’t directly change the IR35 rules, it could affect whether a company crosses the size thresholds and, as such, careful consideration must be given to determine whether you now fall within the scope of the IR35 OPWR and, if you do, when they would apply from.

Need help?

If you have any questions or would like to discuss these changes further, get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk if you're yet to become a client.

Tessa Brown