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New thresholds are likely to be welcomed by many practitioners and directors
On 9 December 2024, the UK government published The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303) which come into force for financial years beginning on or after 6 April 2025.
The previous Conservative government proposed increasing the company size thresholds in March 2024. There was, of course, a general election in the summer of 2024 and these proposals were not subsequently mentioned in the King’s Speech in July 2024, indicating that they had been moved down the list of priorities by the new Labour government.
On 14 October 2024, the Department for Business and Trade announced that it would be pressing ahead with the increase in company size thresholds and various amendments to the directors’ report. It did, however, confirm that it would not be going ahead with plans to redefine a medium-sized company (as indicated in the original proposals) as this would be included in a more holistic project which will form part of the Future of Corporate Reporting. This consultation is expected to be launched in 2025.
As a reminder, the new company and group size thresholds are shown in the table below:
| Company and group size thresholds (net) for financial years commencing 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: |
Not applicable |
Small | Medium | Large |
| Annual turnover (£) | <18m | <64m | >64m | |
| Balance sheet total (£) | <9m | <32m | >32m | |
| Average number of employees | <50 | <250 | >250 | |
The new size thresholds are also applicable to limited liability partnerships. In addition to the increase to the company size thresholds, several changes have been made to the directors’ report, as follows:
Small companies and groups
The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 (SI 2008/409) are amended to remove paragraph 5 in Schedule 5 Matters to be dealt with in directors’ report which relates to disclosures relating to employment of disabled persons.
Medium and large companies and groups
Amendments to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) have been made as follows:
- Regulation 10 Directors’ report, paragraph 2 has been amended to omit Part 3 disclosures relating to the employment, training and advancement of disabled persons. In addition, Part 4 disclosures have been removed which relate to the engagement by the company with employees, suppliers, customers and others.
- Schedule 7 of SI 2008/410 (matters to be dealt with in the directors’ report) has been amended to omit paragraphs 6 and 7. Paragraph 6 relates to financial instruments disclosures (such as financial risk management objectives, exposure to price risk, credit risk, liquidity risk and cash flow risk etc); and paragraph 7 contains disclosure requirements relating to:
o post-balance sheet events
o future developments
o research and development activities
o an indication as to the existence of branches of the company outside of
the UK
- Parts 3 and 4 of Schedule 7 to SI 2008/410 have also been removed:
o Part 3 relates to the disclosures concerning employment of disabled
persons
o Part 4 relates to the disclosures concerning engagement with
employees, suppliers, customers and others
These amendments have been made to the directors’ report to remove unnecessary overlap which should improve the conciseness of the directors’ report.
Other amendments
In addition to the above, amendments have been made to the Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 2008 to omit sub-paragraph (i) in paragraph 3 of regulation 3.
Amendments have been made to the Partnerships (Accounts) Regulations 2008 to remove the words ‘except paragraph 7’ in paragraph 2(2)(g) of the Schedule (Part 1 Modifications and Adaptations for Purposes of Regulation 4).
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.
Conclusion
It is expected that these new thresholds will be welcomed by many practitioners and directors. There will also be an increase in the number of companies that will be eligible to claim audit exemption and prepare financial statements under a less onerous reporting regime, such as FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, section 1A Small Entities, or FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.
There are some concerns about the impact of the new on-balance sheet lease accounting treatments within FRS 102 that arose as part of the FRC’s periodic review which completed in March 2024. The periodic review 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 that more right-of-use assets will be recognised on-balance sheet under FRS 102 (September 2024) and the fact that this breach could push some companies into the requirement to have an audit. The increase in the company size thresholds may now alleviate some of those concerns.