Changes to company size thresholds

New legislation “The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024” was issued in December 2024, confirming the well-trailed proposal to increase the size thresholds for companies and LLPs.  This is the first change to the thresholds since 2013 and should reduce the reporting burden, with a government estimate of 14,000 companies and LLPs moving from medium-sized to small (so, potentially being able to claim exemption from audit).

The new thresholds

The monetary size threshold changes are effective for accounting periods beginning on or after 6 April 2025.

There is no change in the third threshold for ‘Monthly average number of employees’ being not more than 10, 50, and 250 respectively.  There is also no change to the rule that a company / LLP must meet two out of three of the size thresholds to qualify as small etc.

Transition

There is a transitional provision to allow companies / LLPs to assume that the new thresholds had been applicable in the previous financial year so that entities can benefit from the threshold uplift as soon as possible after the legislation comes into effect. This is a tweak to the ‘two-year consecutive rule’ that applies in determining an entity’s size.

Example:

Company P has a year-end of 30 June.  If the results for the year ended 30 June 2025 include turnover of £13m and total assets of £6m, the company will be medium-sized for 2025 and require an audit.

Assume the 2026 results are for turnover of £14m and total assets of £6.5m – now, as this is the first accounting period commencing after 6 April 2025, the new size thresholds apply, and the company will meet the criteria to be classified as small.

When we look back to the 2025 results compared against the new size thresholds, the company would have qualified as small, so Company P can immediately take advantage of the reduced reporting / audit exemption for the 2026 year-end as it has been small (using the new thresholds) for two consecutive years.

This ‘look back’ transitional provision does not mean that Company P can avoid one last audit in 2025 on the basis that it will be small when the new size criteria apply – we’ve already had some questions on this.

Directors’ Report changes

The legislation also brought in some good news for large and medium-sized entities, which will no longer be required to include information on the following in their Directors’ Report:
•    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.

This should help remove duplication with other requirements / disclosed and obsolete content.

What about charities?

There continue to be calls for the charity regulators in the UK to increase the audit thresholds, which stand at income over £1m in England and Wales (or income over £250k with total assets of more than £3.26m) and £500k in Scotland and Northern Ireland. There are no firm commitments as yet, but we’ll keep you updated if that changes.

We’re here to help

For more support on this topic please reach out to your local Bishop Fleming team or email us with your enquiry.