The IR35 small client exemption
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If your end client is a small company, the client-led off-payroll rules (Chapter 10) don't apply — status stays with your own PSC under the older Chapter 8 self-assessment. That flips who carries the risk, so testing client size is one of the highest-value checks you can run before signing.
The two-of-three test (financial years from 6 April 2025)
| Condition | Threshold |
|---|---|
| Annual turnover | not more than £15m |
| Balance sheet total | not more than £7.5m |
| Employees | not more than 50 |
Meet two or more of the three and the client is small — exempt from Chapter 10. Meet only one and the client is medium/large and must issue a Status Determination Statement. The thresholds rose from £10.2m/£5.1m/50 for financial years beginning on or after 6 April 2025 (Companies Act 2006 size test as amended), which pulls thousands of previously medium clients out of scope.
How to check a client
Ask directly (a compliant client knows its size test position), or check the most recently filed accounts at Companies House — turnover and balance sheet are in the notes. The test looks at the client's previous financial year, and the two-consecutive-years rule means a client that shrinks doesn't become small overnight.
Source: ITEPA 2003 Chapter 10 and the Companies (Accounts and Reports) size-threshold regulations applied from April 2025. Verify at gov.uk.
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