The UK government’s recent update to the definition of a small company is a game changer for businesses and professionals alike. With thresholds increasing from April 2025—raising the turnover limit to £15 million and the balance sheet total to £7.5 million—more companies will now qualify as small. This means fewer reporting burdens and greater operational flexibility.
But for the contingent workforce and the businesses that rely on them, the real impact comes from how this change interacts with IR35 reforms.
The shift in IR35 and why it matters
IR35 has long been a critical issue for hirers and recruitment agencies when engaging contingent workers. Previously, medium and large companies bore the responsibility of determining the IR35 status of contractors, leading to cautious and often risk-averse hiring decisions.
With the expansion of the small company definition, more businesses will now fall outside the scope of these IR35 requirements, passing the determination responsibility back to the contractor.
For hirers and recruitment agencies, this presents a huge de-risking opportunity. No longer having to make complex IR35 assessments means reduced compliance risks, fewer administrative burdens, and access to a broader talent pool of contractors who prefer working outside IR35.
What this means for hirers and recruitment agencies
- Attracting more talent – With IR35 responsibilities shifting back to contractors for more businesses, agencies can attract and place top-tier contingent workers who may have previously been deterred by restrictive determinations.
- Reduced compliance risks – Removing the obligation to assess IR35 status means fewer liabilities and potential penalties for incorrect assessments, allowing businesses to focus on operations and growth.
- Cost-effective hiring – Without the need to factor in IR35-associated costs, businesses can offer competitive contractor rates without inflating budgets to cover employment taxes.
- Enhanced flexibility – With the ability to hire contractors on their own terms, companies can build agile, project-based teams without the administrative burden of traditional employment structures.
Small company definition and IR35 changes - A win for contingent workers
For contractors, the changes to small company definition mean greater autonomy. Many professionals prefer working through their own limited companies but have been discouraged by blanket IR35 determinations. With the shift in responsibility, they regain control over their tax status, enabling them to operate with more certainty and financial security.
Additionally, fewer compliance hurdles mean recruitment agencies can work with a larger pool of skilled contractors, ensuring better matches between talent and opportunities.
The bigger picture
This change is more than just a numbers game. By simplifying regulations, the government is empowering businesses to thrive while giving professionals the freedom to operate under a model that works best for them.
For recruitment agencies, this is a prime opportunity to strengthen client relationships, reduce compliance headaches, and facilitate a more dynamic workforce.
As these new rules on small company definition come into effect, now is the time for businesses, agencies, and contractors to review their strategies and take full advantage of the evolving landscape. Whether you’re a hirer looking to engage top talent or a contractor seeking better opportunities, these updates are set to reshape the industry for the better.
Want to know more about how the change to small company definition affect you?
Want to learn more about how the changes to small company definition impact you? Get in touch with our team today and we’ll be happy to discuss it with you.
