Effective for financial years beginning on or after 6 April 2025, new regulations will bring about significant changes to company size thresholds and so reporting requirements for UK companies and LLPs.
For micro, small and medium-sized entities, the monetary size thresholds will increase, in an attempt to reduce the complexity and reporting burden on companies as it stands.
The thresholds are set out in the table below, and two of the three criteria must be met for a financial year:
| Micro | Small | Medium | ||||
| Current | From 6 April 2025 | Current | From 6 April 2025 | Current | From 6 April 2025 | |
| Turnover not more than: | £632k | £1m | £10.2m | £15m | £36m | £54m |
| Balance sheet total not more than: | £316k | £500k | £5.1m | £7.5m | £18m | £27m |
| Average number of employees not more than: | 10 | 10 | 50 | 50 | 250 | 250 |
The ineligibility criteria remains unchanged (i.e. a public company being prohibited from qualifying as a micro, small or medium company) included under sections 384B, 384 and 467 of the Companies Act 2006 for micro, small and medium entities respectively.
The classifications exist to help determine whether a business is small, medium or large which will determine the company’s eligibility for various financial reporting and statutory audit requirements.
Application of thresholds
The increased size thresholds apply for periods beginning on or after 6 April 2025. Entities are able to apply the size thresholds, in relation to both the current and previous financial years for their first set of financial statements beginning after 6 April 2025.
A company with a 30 April year end cannot use the new size thresholds to calculate its size for the year ended 30 April 2025 as its accounting period commenced prior to 6 April 2025.
However, it will be able to use the new thresholds for the year ended 30 April 2026. It will also then be able to use the new size thresholds for previous years, in order to calculate whether it meets the relevant size criteria for two years in a row.
What do the changes mean for my business?
According to the ICAEW, the Government estimates that over 130,000 limited companies and limited liability partnerships (LLPs) will be impacted by the changes.
Companies moving down a size category will be entitled to the associated reduction in reporting and possible audit exemption.
The key points to be aware of are as follows:
- Many more companies will now qualify as small or micro, allowing them to take advantage of reduced disclosures in their financial statements, and exemption from requiring a statutory audit (unless part of a larger group needing one, or voluntary audit).
- If you’re a fast-growing business who may drop out of audit temporarily when the new thresholds come in it is worth considering retaining a voluntary audit to avoid future issues
- The ‘two-year’ rule means a company only ceases to be classified as small/medium once two of the above thresholds have been exceeded for two consecutive reporting periods. As detailed the new legislation will allow for the new limits to be applied for the comparative period to ensure that the rule still applies.
- It is worth bearing in mind that different rules and size thresholds apply for group companies.
The changes outlined are significant and small businesses in particular, who were previously required to undergo an audit, will need to carefully consider the impact of potentially not having an audit on the credibility of their financial statements particularly where there are external stakeholders or plans of a future sale of the business.
Our team of experts can help you to identify whether the changes will impact your size classification, and can ensure a smooth transition as well as ongoing compliance. Contact us today to discuss the changes in more detail.
