UK company size thresholds have increased

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 has come into force, increasing the monetary size thresholds for micro, small and medium-sized entities for financial years starting on or after 6 April 2025.

The uplift in thresholds is part of a drive to cut complexity and reduce the reporting burden on companies. It also accounts for the impact of inflation since the previous thresholds were set in 2013.

New monetary size threshold

The table below sets out the new size thresholds that will be met for a financial year if any two of the three criteria are met.

The increased thresholds also apply to limited liability partnerships (LLPs) via amendments to the regulations that govern them.

Impact of threshold uplift

The government estimates that the changes will result in approximately:

• 113,000 companies and LLPs moving from the small to the micro-entity category,
• 14,000 moving from medium-sized to small, and
• 6,000 moving from large to medium-sized.

Companies able to move down a size category are entitled to the accompanying reduction in reporting and audit requirements.

For entities that have moved into the small entities regime, the impact will be significant. They are now exempt from the requirement to have a statutory audit of their annual accounts (subject to implications of group membership) and from producing a Strategic Report.

They are also able to take advantage of simpler accounting requirements. Those that have moved to the micro entities regime are now be exempt from producing a Directors’ Report.

Auditors may wish to reassess their portfolios to identify which entities no longer meet the criteria for mandatory audits and confirm that entity management are fully informed of their options under the updated regulations. 

Organisations that have moved from the large to the medium-sized category can now take advantage of exemptions from certain Strategic Report requirements, including a statement on how directors have had regard to stakeholder and other interests listed in section 172, CA 2006, otherwise known as the Section 172(1) statement.

Transition and "two-year" rule

The legislation includes a transitional provision for the application of the “two-year consecutive rule” which enables companies and LLPs to benefit from the threshold uplift as soon as possible.

When determining company size for a financial year beginning on or after 6 April 2025, this provision allows preparers to assume that the new thresholds were applicable in the previous financial year.  

Changes to Directors’ Report requirements

To further lessen the UK’s regulatory burden, particularly with regard to non-financial reporting, the regulations have removed several obsolete or overlapping requirements relating to the contents of the Directors’ Report. 

Large and medium-sized entities are no longer be required to include information relating to the items listed below in their Directors’ Report:

• the use of financial instruments;
• important events that have occurred since the end of the financial year;
• likely future developments in the business of the company;
• research and development activities;
• the existence of branches outside the UK;
• the employment, training and advancement of disabled persons (this requirement is also removed from directors' report requirements for small entities); and
• engagement with employees, suppliers, customers and others.

Further information changes can be found on ICAEW's UK regulation for company accountants hub.

Additional measures

Additional measures to remove certain overlapping EU-origin reporting requirements from the Directors’ Remuneration Report, as well as to address technical issues in the audit regulatory framework, will be detailed in a separate piece of secondary legislation. The draft Statutory Instrument was laid before parliament in March, but is yet to be finalised. 

Fahad Asgar, Technical Manager, Corporate Reporting Faculty, ICAEW, welcomed the regulations as a step forward in making the reporting requirements more efficient and proportional. “We are pleased to see the current government follow through with the previous government’s plans to increase the company size thresholds and streamline other non-financial reporting requirements,” he says. “Ensuring proportionality and removing duplicative reporting requirements is an important first step towards a modernised model for UK corporate reporting.”