What is the small company exemption?
In October 2018 the Government confirmed the April 2020 private sector extension of the off-payroll rules with IR35 small companies exemption.
The Budget documentation contained an exclusion for small companies stating they will be exempt. This should minimise administrative burdens for the vast majority of engagers! HMRC have also stated that they will provide support and guidance to those affected by the changes ahead of implementation.
So does the “IR35 small companies exemption” mean?
The Government confirmed that it will use the same criteria contained in the Companies Act 2006.
A business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria over any annual period:
Turnover is no more than £10.2 million
Balance sheet total is no more than 5.1 million
Number of employees are 50 or less
Any contractors engaged by such companies will continue to operate the IR35 rules as they do currently. In this scenario the responsibility for determining their employment status will not pass to their clients.
The Companies Act rules allow for a small subsidiary of a large group to be classified as small – this would get around the rules, allowing large end users to form small, exempt subsidiaries. But HMRC are not stupid are believed to be putting in anti-avoidance rules to counter this.