For businesses in the UK, company size thresholds determine compliance requirements, financial reporting obligations, and eligibility for various schemes and incentives.
However, these thresholds have become increasingly complex and difficult to navigate. With changes now confirmed to be in place from April 2025, Stacey Parr, Audit Services Director, explains what the changes are.
Over to Stacey
In December 2024, the government published new legislation, The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, which saw the thresholds that determine a company’s classification rise by around 50%, simplifying and easing the legislative reporting requirements.
The reasoning for this was to cut complexity and reduce the reporting burden on companies, as well as addressing the impact of inflation from when the thresholds were originally set in 2013.
So, what’s changing?
The new measures, which will be effective for periods commencing on or after 6 April 2025, will see the micro-entity revenue threshold increase from £632,000 to £1 million. For small companies, the threshold will rise to £15 million, and for medium-sized companies, it will increase to £54 million. Companies with revenue above £54 million will be classified as large.
Similarly, balance sheet thresholds will increase to £500,000 for micro-entities, £7.5 million for small companies, and £27 million for medium-sized companies. There will be no change to the average employee figure threshold.
As before, the thresholds will be met for a financial year if any two of the three criteria are met.
What will be the impact of the changes?
According to the government, this move will impact approximately 133,000 businesses with a number being entitled to a reduction in reporting and audit requirements, whilst also predicting an estimated saving of more than £240m a year for UK companies.
Those moving into the small entities’ regime will see the biggest impact:
- They will be exempt from the requirement to have a statutory audit on their annual accounts (subject to implications of group membership).
- They will be exempt from producing a Strategic Report.
- Their accounting requirements will be simplified.
Micro entities will enjoy the above and also will now be exempt from producing a Directors’ Report.
Companies moving from large to medium in size, will be exempt from certain Strategic Report requirements, including the Section 172(1) statement.
Directors’ Report requirements – what’s changing?
The new regulation has also removed some of the contents of the Directors’ report, which overlap with other reporting requirements or have become obsolete.
Large and medium-sized entities will no longer be required to include in their Directors’ Report information on:
- financial instruments;
- important events that have occurred since the end of the financial year;
- likely future developments;
- research and development;
- branches outside the UK;
- the employment of disabled people (this requirement is also being removed for small entities);
- engagement with employees; and
- engagement with customers and suppliers.
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