UK company size thresholds to increase
New regulations increasing company size thresholds and removing certain requirements from the Directors’ Report will be effective from 5 April 2025 and mean that more companies will be eligible to claim audit exemption and prepare financial statements under a less onerous reporting regime.
The UK government published The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303) on 9 December 2024, which come into force for financial years beginning on or after 6 April 2025 and increase the monetary size thresholds for micro, small and medium-sized entities.
The uplift in thresholds is part of a drive to cut complexity and reduce the reporting burden on companies. It also accounts for the impact of inflation since the previous thresholds were set in 2013.
New monetary size threshold changes (effective from 6 April 2025)
The table below sets out the new size thresholds that will be met for a financial year if any two of the three criteria are met.
Company and group size thresholds (net) for financial years on or after 6 April 2025 | ||||
---|---|---|---|---|
2 out of 3 of: | Micro | Small | Medium | Large |
Annual turnover (£) | ≤ £1m | ≤ £15m | ≤ £54m | > £54m |
Balance sheet total (£) | ≤ £500k | ≤ £7.5m | ≤ £27m | > £27m |
Average number of employees | ≤ 10 | ≤ 50 | ≤ 250 | > 250 |
Group size thresholds (gross) for financial years commencing on or after 6 April 2025 | ||||
---|---|---|---|---|
2 out of 3 of: | Micro | Small | Medium | Large |
Annual turnover (£) | N/A | ≤ £18m | ≤ £64m | > £64m |
Balance sheet total (£) | N/A | ≤ £9m | ≤ £32m | > £32m |
Average number of employees | N/A | ≤ 50 | ≤ 250 | > 250 |
The new size thresholds are also applicable to limited liability partnerships (LLPs).
The legislation includes a transitional provision that allows preparers to treat the amendments as having been applied in the previous financial year when determining a particular company size. This gets around the so-called ‘two-year rule’, which requires size thresholds to be satisfied only once the company has met those thresholds in two successive financial years. As a result, companies and LLPs can benefit from the threshold uplift as soon as possible after the legislation comes into force.
Impact of threshold uplift
The government estimates that the new regulations will result in around 113,000 companies and LLPs moving from the small to micro-entity category, 14,000 moving from medium-sized to small and 6,000 moving from large to medium-sized. Companies able to move down a size category will be entitled to the accompanying reduction in reporting and audit requirements.
Changes to Directors’ Report requirements
In an effort to further lessen the UK’s regulatory burden, particularly with regard to non-financial reporting, the new regulations also remove several obsolete or overlapping requirements relating to the contents of the Directors’ Report.
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.
Audit exemption thresholds
The audit exemption thresholds have been coupled with the small companies’ thresholds since 2012. This means that the audit exemption thresholds will automatically increase in line with the small companies’ thresholds. The effective date of the revised audit exemption thresholds is for financial periods beginning on or after 6 April 2025.
It is expected that these new thresholds will be broadly welcomed by many practitioners and directors.
There have been some concerns about the impact of the new lease accounting requirements within FRS 102 that arose as part of the FRC’s most recent periodic review. The amendments apply mandatorily for accounting periods commencing on or after 1 January 2026 (with early adoption permissible provided all the FRC’s periodic review amendments are applied at the same time).
The concern relates to the gross assets test being breached when it comes to audit exemption given the requirement to recognise right-of-use assets on-balance sheet (with some exemptions) under FRS 102 and the fact that this breach could push some companies into the requirement to have an audit. The increase in the company size thresholds should hopefully alleviate some of those concerns.
For more information on how these changes might affect your business, please get in touch.
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