Company size thresholds to change from April: Will it impact your reporting?

The Government has now published legislation, ‘The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024’, to increase the monetary size thresholds for micro, small and medium-sized entities.

These threshold increases will lead to significant reporting changes for thousands of UK companies for financial years commencing on or after 6 April 2025, as we have summarised below.

What does it mean for financial reporting and audit?

Companies able to move down a size category will be entitled to the accompanying reduction in reporting requirements.

It is estimated that the new regulations will result in around 113,000 companies and LLPs moving from the small to 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 will be entitled to the accompanying reduction in reporting and audit requirements.

Those moving into the small entities regime will be:

• Exempt from the requirement to have a statutory audit of their annual accounts (subject to implications of group membership) using FRS 102 1A for smaller entities rather than requiring full FRS 102 accounts.
• Exempt from producing a Strategic Report.
• Able to take advantage of simpler accounting requirements.

Those moving into the micro entities regime will be:

• Exempt from producing a Directors’ Report and able to prepare even simpler accounts under FRS 105, easing the overall reporting process.

Those moving from the large to the medium-sized category will be:

• Able to 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.

No delay for implementing reduced reporting

The legislation includes a transitional provision that allows preparers to treat the amendments as having been applied in the previous financial year when determining a particular company size. This relaxes the so-called ‘two-year consecutive rule’, which requires size thresholds to change only when the company has met those thresholds in two successive financial years. As a result, companies and LLPs can benefit from the threshold uplift as soon as possible after the legislation comes into force.

However, there are circumstances where an audit may be required for a small company. This can include being part of a group, or an audit being required by the company’s bank or shareholders. Therefore, the changes in audit thresholds may not necessarily mean an audit is not required for all companies.

Changes to Directors’ Report requirements

The new regulations also sets out to remove several obsolete or overlapping requirements relating to the contents of the Directors’ Report.

As such, large and medium-sized entities will no longer be required to include in their Directors’ Report information around risks relating to financial instruments, research & development expenses, post balance sheet events and their engagement with employees, suppliers and customers. Also they will no longer need to include information on their policies and procedures in respect of the recruitment, employment and career development of disabled persons.

However, some of these disclosures may still need to be included in the notes to the financial statements where accounting frameworks require such information.