UK businesses must navigate various thresholds that impact their regulatory compliance, reporting requirements, and access to different business schemes and incentives.
However, over the years these thresholds have become increasingly complex and difficult to navigate. To simplify things, the government will introduce new legislation to help reduce the reporting burden, which will be in place from April 2025.
Below we explore what the new thresholds are and what these updates will mean for your business.
Background to the Changes
In December 2024, the announcement of The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 marked a significant shift in company classification thresholds. This legislation represents the first major update since 2013, addressing inflation impacts and aiming to streamline reporting obligations.
So, what's changing?
The two thresholds that will be updated, and which will be effective for periods commencing on or after 6 April 2025, are Revenue and Balance Sheet Thresholds, with new levels for Micro-entities, Small Companies and Medium-sized companies.
Revenue Thresholds:
Micro-entities:
- Previous: £632,000
- New: £1 million
Small Companies:
- Previous: £10.2 million
- New: £15 million
Medium-sized Companies:
- Previous: £36 million
- New: £54 million
Balance Sheet Thresholds:
Micro-entities:
- Previous: £316,000
- New: £500,000
Small Companies:
- Previous: £5.1 million
- New: £7.5 million
Medium-sized Companies:
- Previous: £18 million
- New: £27 million
At this time, the ‘employee number’ thresholds will remain unchanged.
As before, the thresholds will be met for a financial year if any two of the three criteria are met.
The legislation includes a transitional provision for the application of the “two-year consecutive rule”. When determining company size for a financial year beginning on or after 6 April 2025, the transitional provision allows preparers to assume that the new thresholds had been applicable in the previous financial year. This look back is only available for the application of the two-year rule, but as a result, companies and LLPs can benefit from the threshold uplift as soon as possible after the legislation comes into effect.
Benefits and Impact
These adjustments will benefit approximately 133,000 UK businesses, with the potential annual saving for UK companies expected to be over £240m.
Key advantages of these changes include:
For companies moving from Medium to Small Entities:
- Exemption from statutory audit requirements (group membership conditions apply)
- No Strategic Report requirement
- Simplified accounting processes
For companies moving from Small to Micro Entities:
- All small entity benefits plus Directors' Report exemption
For companies Moving from Large to Medium Entities:
- Reduced Strategic Report obligations
- Removal of Section 172(1) statement requirement
- Streamlined Directors' Report Requirements
The updated regulations have simplified reporting for large and medium-sized entities by removing several Directors' Report requirements, including:
- Financial instruments reporting
- Post-year-end event documentation
- Future development forecasts
- R&D activity details
- International branch listings
- Disability employment statistics
- Employee engagement reporting
- Customer and supplier relationship documentation
Need Support?
For personalised guidance on these threshold changes and their impact on your business, reach out to our expert team by emailing info@ashgates.co.uk or calling 01332 380691.