As reported in March, the UK government plans to lay legislation before Parliament this summer to increase by 50% the monetary thresholds that determine company size, with an intended effective date of accounting periods beginning on or after 1 October 2024. 

The Companies Act 2006 (CA 2006) sets out four size regimes, which drive the specific content requirements of the accounts that need to be prepared and filed with Companies House: micro-entity; small; medium-sized; and large. The monetary thresholds have not been updated since being introduced as part of the EU Accounting Directive in 2016. Companies must meet at least two of the three criteria in either their first-ever financial year or for two consecutive financial years to be able to qualify for each regime. As well as the quantitative criteria, qualitative factors are used to establish whether a company is excluded from a regime because of its nature or because it is a member of an ineligible group.

How will businesses be affected? 

Proportionality is a key feature of the UK’s reporting framework, with a number of special provisions in the CA 2006 for micro-entities and small and medium-sized companies when preparing and filing their annual accounts and reports. The uplift in thresholds will potentially enable companies to move down a size category and take advantage of the accompanying reduction in requirements.

At first glance, any reduction in reporting requirements – and the associated cost saving – is likely to be seen as an immediate benefit, and something most companies would be expected to take advantage of. However, as is so often the case, the decision might not be as clear cut as it seems.

 Growth trajectory

For companies on an upward growth trajectory, any step down in the regime they qualify for may be temporary. Where companies already have processes in place to meet certain reporting requirements, it might prove disruptive to change reporting processes, only to have to reinstate them again in a few years’ time.

Concerns about FRS 105

Concerns about the micro-entities regime are widespread in the accountancy profession. Many believe micro-entity accounts contain so little information that they are meaningless for assessing the past performance, position or future prospects of a company. Conceptually, the ‘deemed true and fair’ nature of FRS 105 accounts is considered flawed, with some accountancy firms not willing to use the micro-entities regime.

Interaction with other changes

Other moving parts in the corporate reporting landscape also need to be borne in mind. The Economic Crime and Corporate Transparency Act will lead to filing requirements change for small and micro-entities in the next year or two, with companies falling within either size regimes required to file their profit and loss accounts. The Act has also given Companies House new powers to help prevent fraud within the companies’ register.

The final amendments to FRS 102 from the second periodic review of the standard by the Financial Reporting Council have been published. Among the changes is an increase in the minimum disclosure requirements in Section 1A. The effective date of this and most other amendments is 1 January 2026. 

TIp of the iceberg

Increasing the size thresholds will certainly help keep the UK framework competitive. However, other underlying issues will remain, such as the definitions of turnover, total assets and employees. These would all benefit from a review.

There are bigger questions too. Is it enough to meet just two of three size criteria? Should more emphasis be placed on the ownership structure of the company?

With 2024 set to be a General Election year, limited parliamentary time exists to effect change to the legislative framework for UK reporting. Nevertheless, we believe the government should do as much as it can in the time available to underpin the UK’s position as a global leader in quality corporate reporting. Increasing company size thresholds is an important first step.

Sally Baker, Head of Corporate Reporting Strategy, ICAEW

Further reading

A longer version of this article appears on By All Accounts, the Corporate Reporting Faculty’s content hub.

Non-financial reporting: what needs to be done outlines ICAEW’s key recommendations.