ESM10006A - Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: meaning of medium or large-sized non-public sector organisation: Size-threshold changes from 6 April 2025
Source: gov.uk (2025-04-08)


The general principles setting out the meaning of medium or large-sized organisations are set out at ESM10006 (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10006).

Qualifying criteria for the Small Companies Regime can be found from section 382 Companies Act 2006 onwards. A corporate entity will be medium or large-sized if it meets the criteria for two consecutive financial years.

What is changing?

From 6 April 2025, two of these three thresholds in the Companies Act will increase. The changes apply to financial years beginning on or after 6 April 2025. For these financial years, the new thresholds for when a corporate entity will be medium or large-sized are:

Turnover of more than £15million; and

Balance sheet total of more than £7.5 million

The 50-employee limit remains unchanged.

Financial year

When considering the qualifying criteria, a corporate 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 the tests are met.

The changes to the size thresholds do not affect either of the principles outlined above. The changes only relate to the conditions used to determine a client’s size. Therefore, the relevant financial year for OPW purposes remains the last financial year for which the period for filing its accounts ended before the beginning of the tax year, and a company still needs to meet the relevant conditions to be considered small or medium-sized for two consecutive financial years.

Similarly, the principles applying to non-corporate undertakings, such as partnerships and other persons, which are explained at ESM10006 (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10006), are not affected by the changes to the size thresholds. Those categories of entities should continue to apply the rules according to their own status.

Transitional provision

The size threshold changes include a transitional provision which could impact the size of a company or group in relation to a financial year beginning on or after 6 April 2025. The transitional provision can apply regardless of a client’s size in its first accounting period beginning on or after 6 April 2025.

The transitional provision applies the new size thresholds to a previous financial year to determine its size for a financial year beginning on or after 6 April 2025. The effect of the provision is to treat a company or group as having met the relevant size conditions in a previous year if the new thresholds were used to determine its size. This, in turn, determines the tax year in which any size changes take effect, bearing in mind the two-year rule outlined above.

Incorporating the principles regarding relevant years for OPW purposes, for the usual 12-month financial year, the earliest tax year the transitional provision will impact a client is 2027/28. This is because the earliest possible filing date for an accounting period beginning on or after 6 April 2025 is in January 2027, which would be relevant for the 2027/28 tax year.

Example 1

Company A is a medium-sized company and has applied the OPW rules since introduction. It has a financial year end of 30 June. The period for filing its accounts will end 9 months later, on 31 March the following year.

For the financial year beginning 1 July 2024 and ending 30 June 2025 Company A used the pre-6 April 2025 thresholds because the financial year did not begin on or after 6 April 2025. Applying these thresholds, it was a medium-sized company.

For the following financial year beginning 1 July 2025 and ending 30 June 2026 Company A will use the increased post-6 April 2025 thresholds because it is the first financial year beginning on or after 6 April 2025. Under the increased thresholds Company A is classified as a small-sized company.

Company A looks back under the transitional provisions to the previous financial year for which it was medium under the pre-6 April 2025 thresholds. Now, under the increased thresholds, Company A is small-sized for the financial year 1 July 2024 to 30 June 2025.

Company A is therefore classified as being small-sized for two consecutive financial years. The second financial year ended on 30 June 2026. The period for filing accounts for that financial period ends on 31 March 2027. The tax year following this is the 2027/28 tax year where Company A will now be outside the scope of the OPW rules.

Example 2

Company B is a small-sized company and has been outside of the scope of OPW rules since introduction. It has a financial year end of 30 June. The period for filing its accounts will end 9 months later, on 31 March the following year.

For the financial year beginning 1 July 2024 and ending 30 June 2025 Company B used the pre-6 April 2025 thresholds because the financial year did not begin on or after 6 April 2025. Applying these thresholds, it was a medium-sized company.

For the following financial year beginning 1 July 2025 and ending 30 June 2026 Company B will use the increased post-6 April 2025 thresholds because it is the first financial year beginning on or after 6 April 2025. Under the increased thresholds Company B is classified as a medium-sized company. Without the transitional provisions, the two-year rule would be met, and it would be required to operate the OPW rules from the 2027/28 tax year.

Company B looks back under the transitional provisions to the previous financial year for which it was medium-sized under the pre-6 April 2025 thresholds. By applying the increased thresholds Company B is now small for the financial year 1 July 2024 to 30 June 2025.

Company B therefore has not satisfied the two-year rule and remains outside the OPW rules. The financial year beginning 1 July 2025 and ending 30 June 2026 is the first year Company B is classified as medium-sized. Company B would need to be medium-sized for another financial year before the two-year rule can be satisfied.