Audit and the key changes to company size thresholds

The UK Government has introduced the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303), which revise company size thresholds. These updates aim to ease financial reporting requirements for smaller businesses by expanding the number of companies eligible for simplified reporting.

• The criteria defining company sizes are set out in the Companies Act 2006. Micro-entities are covered under sections 384A-384B, small companies under sections 381-384, and medium-sized companies under sections 465-467. Any company exceeding these limits is classified as large.
• The thresholds for annual turnover and balance sheet total will be raised by around 50%. Other qualification criteria for company size will remain unchanged.
• The updated thresholds will also extend to Limited Liability Partnerships (LLPs).

Current and revised group size thresholds (gross)

Current and revised company size thresholds and group size (net) thresholds

When do the changes to company size thresholds take effect?

• These new thresholds will apply to accounting periods beginning on or after 6 April 2025.
• Under the current ‘smoothing provisions,’ a company must exceed or fall below a threshold for two consecutive years to change its classification. In the first year of implementation, the new thresholds will be applied retrospectively for classification purposes, meaning some companies may shift categories immediately.

Can companies adopt the new company size thresholds early?

• No, businesses reporting for accounting periods that start before 6 April 2025—such as those with a financial year ending on 31 December 2025—must wait until their next financial year (ending 31 December 2026) to apply the new thresholds.

What are the financial reporting implications?

• A change in size classification could impact financial reporting obligations. Companies that now qualify as small or micro-entities may choose to follow the simplified reporting frameworks under Section 1A of FRS 102 (for small entities) or FRS 105 (for micro-entities).
• Businesses should also take into account upcoming amendments from the 2024 Periodic Review of FRS 102 and FRS 105.
• Gross figures must be calculated before any offsets or adjustments that remove intra-group transactions.

How does this impact audit exemption rules?

• The revised size thresholds will apply to audit exemptions under sections 475, 477, and 479 of the Companies Act 2006. This means small companies and small groups that qualify can continue to prepare unaudited accounts, and micro-entities can also claim this exemption.

Will disclosure requirements for the strategic and directors’ reports be affected?

• Yes, the change in classification may alter certain disclosure obligations. Companies qualifying as micro, small, or medium-sized can access various exemptions in their strategic and directors’ reports.
• For instance, under section 414CZA of the Companies Act, medium-sized businesses are not required to include a section 172(1) statement in their financial statements.

Does this impact streamlined energy and carbon reporting (SECR) thresholds?

• No, these regulations do not alter SECR requirements. Companies should refer to Parts 7 and 7A of Schedule 7 in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) for the applicable SECR thresholds.

If you would like to speak to a member of our team regarding the impact of the changes to company size thresholds, or if you would like to speak to a member of our audit team about the impact of these changes and how the size thresholds might have an impact on your reporting and audit requirements please contact us or telephone us on 020 7870 9050.