On 18 March 2024, the government announced its intention to lay legislation this summer that will make changes to the company size thresholds, with the aim of reducing the regulatory burden on small and medium sized businesses in relation to non-financial reporting and audit exemptions.

The company size criteria were last amended in 2012 and the proposed changes are designed to take account of inflation.

From 1 October (i.e. 30 September 2025 year ends unless a short period), the new size limits are as follows:

The qualifying conditions will be met if a company meets at least two of the three thresholds in the above table in a financial year.

Who is Affected?

UK companies within all size bandings will be affected. The government estimates that 5,000 companies currently classified as large will be reclassified as medium, 13,000 companies currently classified as medium will be reclassified as small and 113,000 companies currently classified as small will be reclassified as micro-entities.

Preparing For The Changes

Companies should review their size against the new criteria to identify whether they have moved from one banding to another and familiarise themselves with the changes to narrative reporting.

In most cases, this is likely to result in a reduction in disclosure or narrative reporting, but directors should also be aware of the additional filing requirements for small and micro entities, which are to be introduced as part of the implementation of the Economic Crime and Corporate Transparency Act 2023.

The FRC’s recent changes to financial reporting standards will potentially make small companies which qualify as micro, interested in changing financial reporting standards from FRS 102 to FRS 105. 

If the company has changed size, it’s worth considering whether this would result in the company being entitled to claim audit exemption, and if so, considering the pros and cons of claiming the exemption.

Are There Any Other Planned Changes?

The government has stated that the legislation will include changes to Directors’ Reports and the Directors’ Remuneration Report and Policy to remove ‘low-value, obsolete or overlapping requirements’. There will also be some technical changes in the legislation to address identified issues in the assimilation of former EU audit legislation into UK law, although these changes will retain the practical effect of the original legislation.

There are plans to open two consultations later this year, with similar objectives to the changes above.

The first is a consultation on amending the definition of a medium-sized company for company reporting to increase the threshold number of employees from 250 to 500, for a company to be classified as medium-sized.

The second will consult on exempting medium-sized companies from the requirement to produce a strategic report and exempting smaller public interest entities from audit tendering and rotation requirements.

We Can Help!

For more information on the changes to company size thresholds and the impacts for your company, please do get in touch.