New Company Size Thresholds Come Into Effect On 6 April 2025

The UK government has announced significant changes to company size thresholds, effective for financial periods beginning on or after 6 April 2025. These adjustments aim to reduce the reporting burden on businesses and account for inflation since the previous thresholds were established in 2013.

New Company Size Thresholds

A company is classified into a size category if it meets at least two of the following three criteria:

Note: The balance sheet total refers to the total assets held by the company.

Impact on Reporting and Audit Requirements

The revised thresholds will allow many companies to transition to a smaller size category, thereby benefiting from simplified reporting obligations:

• Micro-Entities: Exempt from producing a Directors’ Report and can prepare simpler accounts under FRS 105.

• Small Entities: Exempt from the requirement to have a statutory audit of their annual accounts (subject to group membership implications), exempt from producing a Strategic Report, and can adopt simpler accounting requirements.

• Medium-Sized Entities: Exempt from certain Strategic Report requirements, including the Section 172(1) statement, which details how directors have considered stakeholder and other interests.

These changes are expected to result in approximately 113,000 companies and LLPs shifting from the small to micro-entity category, 14,000 from medium-sized to small, and 6,000 from large to medium-sized.

Transitional Provisions

The legislation includes a transitional provision for the “two-year consecutive rule.” When determining company size for a financial year starting on or after 6 April 2025, this provision allows preparers to assume that the new thresholds were in place during the previous financial year. This enables companies and LLPs to benefit from the threshold uplift as soon as the legislation comes into force.

Changes to Directors’ Report Requirements

To further reduce the UK’s regulatory burden, particularly regarding non-financial reporting, the new regulations have removed several obsolete or overlapping requirements from the Directors’ Report for large and medium-sized entities. The following information is no longer required:

• 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
• Engagement with customers and suppliers

These changes aim to streamline reporting and reduce redundancy in corporate disclosures.

Businesses are encouraged to review these new thresholds and assess how the changes may affect their reporting and audit obligations. Consulting with financial advisors or accountants can provide tailored guidance to ensure compliance with the updated regulations.