Does a Small Client Mean You Determine Your IR35 Status?
Find out when you are responsible for your own IR35 status under the UK small company exemption, and how the April 2025 threshold changes affect your contracts.
Yes, your client being a small company does mean you decide your own IR35 status, but only if they qualified as small before April 2025. If they only qualify under the newer, higher thresholds, the change in assessment responsibility does not apply to them immediately. You must carefully verify their status timeline to avoid costly compliance issues with HM Revenue and Customs.
Key takeaways: IR35 small company exemption
Understanding who is responsible for checking your employment status is vital to avoid retrospective tax penalties under current off-payroll working legislation.
- The contractor determines status if the end-client qualifies as a small company.
- The end-client determines status if they are classified as medium or large.
- New, higher financial thresholds for qualifying as a small company were introduced on 6 April 2025.
- A strict transitional timeline catch means newly-small clients will not pass status determination duties back to contractors until April 2027 at the earliest.
Does my client being small mean I determine my own IR35?
Yes, you do determine your own status when working for a small client, provided they met the small company criteria prior to April 2025.
If your client was already small under the older, lower thresholds, nothing changes for your arrangement. You remain responsible for assessing your IR35 status, and your intermediary must account for any tax and National Insurance contributions due.
However, if your client only qualifies as small under the revised limits introduced in April 2025, they must continue to determine your IR35 status for the time being. They remain legally liable for providing a Status Determination Statement until the legislative look-back period is fully satisfied.
What is the IR35 small company exemption?
The IR35 small company exemption is a legislative mechanism under the Income Tax (Earnings and Pensions) Act 2003, specifically Chapter 8 (sections 48 to 60A), that relieves small corporate end-clients of the obligation to assess a contractor's employment status for tax.
Under this system, the old Chapter 8 rules apply, placing the burden of compliance entirely on your personal service company. This stands in contrast to the Chapter 10 rules designed for medium and large clients, which shift the responsibility of status determination to the client and transfer the liability to the fee-payer.
What are the new small company thresholds from April 2025?
The new small company thresholds are updated financial metrics from the Companies Act 2006, applied to the off-payroll working rules to determine company size.
To qualify as a small company, an organisation must meet at least two of the three key criteria. The limits for annual turnover and balance sheet totals were increased on 6 April 2025, while the employee head-count limit remained static.
| Criterion | Before April 2025 | From April 2025 |
|---|---|---|
| Annual turnover | No more than £10.2m | No more than £15m |
| Balance sheet total | No more than £5.1m | No more than £7.5m |
| Number of employees | No more than 50 | No more than 50 (unchanged) |
Why don't the new thresholds apply immediately?
The new thresholds do not apply immediately because of the look-back mechanism established in Section 60A of the Income Tax (Earnings and Pensions) Act 2003.
Under the law, a company must meet the smaller size criteria for two consecutive financial years to officially drop from medium to small status for tax purposes. This timeline determines when the responsibility for IR35 assessments transfers back to you.
- The new threshold limits only apply to complete corporate financial years starting on or after 6 April 2025.
- The client's size for the current tax year is checked against accounts filed before that tax year began.
- A newly-small client must record two consecutive financial years under the higher thresholds before their legal classification shifts.
- As a result of this transition, newly-small clients will not pass IR35 assessment responsibility to contractors until April 2027 at the earliest.
How to check if your client qualifies for the IR35 exemption
You can formally check your client's qualification by requesting their company size in writing, which they must answer within 45 days under Section 61U of the Income Tax (Earnings and Pensions) Act 2003.
If they fail to respond within this 45-day statutory window, the client itself can become liable for any unpaid tax and National Insurance contributions. This provides contractors with a formal legal lever to secure written size confirmation.
Be aware that complex corporate structures change how status is calculated. If your client is a subsidiary of a larger parent company, size is always assessed at the group level, meaning a physically small office owned by a large group does not qualify for the exemption.
What happens if a medium company becomes small for IR35?
When a medium client becomes small, the responsibility for assessing IR35 status reverts from the client back to your personal service company, but only after they have met the small company criteria for two consecutive financial years.
How long does a client have to respond to a request about their company size?
Under Section 61U of ITEPA 2003, your client has 45 days from the date of receiving your written query to confirm whether they qualify as a small company.
How do group structures affect the IR35 small company exemption?
For corporate groups, the small company exemption is calculated based on the aggregate size of the entire global group rather than the individual subsidiary, meaning small subsidiaries of medium or large parents cannot use the exemption.
Do off-payroll working rules apply if my client is based wholly overseas?
If your client has no UK connection, such as a permanent establishment or UK residency, the off-payroll working rules do not apply, and responsibility for IR35 status determination defaults back to the contractor.