In December 2024, ‘The Companies (Accounts and Reports) (Amendments and Transitional Provision) Regulations 2024 (SI 2024/1303)’ were published by the UK Government as part of their initiatives to cut complexity and reduce reporting burdens for companies.
These regulations changed the UK company size thresholds, with the changes applying for accounting periods commencing on or after 6th April 2025, with the first impacted financial year being the end of April 2026.
Our Audit team explain the new thresholds and what you need to know for your business.
Updated thresholds and what it means for your business
The following table sets out the changes:
| Company and group (net) size threshold | Micro | Small | Medium | |||
| 2 out of 3 of: | Current | New | Current | New | Current | New |
| Annual turnover – not more than | £632,000 | £1 million | £10.2 million | £15 million | £36 million | £54 million |
| Total assets – not more than | £316,000 | £500,000 | £5.1 million | £7.5 million | £18 million | £27 million |
| Average number of employees – not more than | 10 | 10 | 50 | 50 | 250 | 250 |
| Group size threshold (where ignore elimination of intra group items) | Micro | Small | Medium | |||
| 2 out of 3 of: | Current | New | Current | New | Current | New |
| Annual turnover – not more than | N/A | N/A | £12.2 million | £18 million | £43 million | £64 million |
| Total assets – not more than | N/A | N/A | £6.1 million | £9 million | £21 million | £32 million |
| Average number of employees – not more than | N/A | N/A | 50 | 50 | 250 | 250 |
The new legislation introduces a transitional provision regarding company size thresholds and the “two-year consecutive rule”. Under this provision, the new thresholds used to determine the company size in the current year, will also be deemed as applicable to the previous period. This means that, for the purposes of audit and reporting requirements, the assessment of whether a company or LLP meets the relevant size thresholds, can be based on the same criteria across both periods, simplifying the transition to the updated thresholds and allowing adoption earlier.
Those companies and LLPs moving to the small companies’ regime will benefit from simpler accounting requirements, as they will no longer be required to produce a strategic report and will be exempt from audit (subject to their governing document and any group membership implications). Entities expected to benefit the most from this change are small non-charitable companies and small LLPs.
Companies that have moved from large to medium-sized can now prepare simpler strategic reports, as the requirement to include a statement explaining how directors have had regard to stakeholders and other interests listed in section 172 of the Companies Act 2006 (the Section 172(1) statement) will no longer apply.
Changes to Directors’ reports
In addition to the company size threshold changes, there are welcome changes for large and medium-sized companies when preparing the Directors’ Report. The legislation includes provisions to exclude the following items from the Directors’ Reports, applicable for the same accounting period:
- Financial instruments
- Likely future developments
- Research and development activities
- Important events that have occurred since the end of the financial year
- Branches outside of the UK
- The employment, training and advancement of disabled persons
- Engagement with employees, customers and suppliers
Some of these disclosures may still need to be included in other parts of the accounts and reports, such as the strategic report.
It is important to note that the Streamlined Energy and Carbon Reporting (SECR) company size thresholds remain unchanged. Consequently, certain companies that now meet the criteria for medium-sized status will still be obligated to include SECR disclosures within their Directors’ Report.
Important additional information
It is important to remember that certain types of companies are not allowed to take advantage of the regime as set out in s.384 (companies excluded from the small companies’ regime), s.384B and s.467 (companies excluded from being treated as medium-sized) of the Companies Act 2006.
While most companies that qualify as small will no longer require an audit, there are some exceptions.
For example, a company that is part of a medium or large-sized group would, regardless of its size, always require an audit, as the group test for audit exemption applies to the largest group that the company belongs to.
If looking to dispense with an audit under these new changes, it is important for companies to consider if other audit requirements exist. For example, the terms of any lending agreements or requirements included in the company articles of association.
My company size threshold has changed – what action do I need to take?
Companies should review their size classification and understand if affected by these new thresholds.
Our Audit team will be able to assist you in ensuring your business is prepared for what comes next. Get in touch today to see how we can help.
