The Government has revealed plans to raise company size thresholds by up to 50%, aiming to reduce regulatory burdens on businesses’ reporting. This initiative is part of a broader package of measures. These adjustments are slated to come into force for businesses commencing their financial year on or after October 1, 2024.
The adjustments are anticipated to result in approximately 5,000 large companies being reclassified as medium-sized businesses, thereby necessitating more proportionate reporting. Similarly, around 13,000 medium-sized companies are expected to transition into small businesses, entitling them to potential audit exemption and simplified filing processes for their accounts. Moreover, over 113,000 small companies will be reclassified as micro entities, enabling them to streamline their accounting procedures.
However, it’s important to emphasise that not all businesses will reap the benefits of these changes. Some companies, regardless of their size, may still be required to undergo an annual audit, especially those operating in regulated industries, publicly traded businesses, or entities within a medium or large-sized group.
Furthermore, the Government’s proposals will encompass revisions to the Directors’ Report and the Directors’ Remuneration Report, eliminating obsolete or redundant requirements. Additionally, there will be consultations regarding the possibility of exempting medium-sized companies from including a Strategic Report.
The changes in detail – To qualify as a micro, small, medium or large company, a business must meet two of the following three criteria.
- Micro businesses. The government considers a business to be a micro-entity if it has an annual turnover of less than £632,000, less than £316,000 on its balance sheet or employs on average fewer than 10 people.
- The new threshold will increase to £1 million or a balance sheet of £500,000.
- Small businesses. To qualify as a small business, it must have a turnover of less than £10.2 million, less than £5.1 million on its balance sheet or employs on average fewer than 50 people.
- The new threshold will increase to £15 million or a balance sheet of £7.5 million.
- Medium-sized businesses are classified as having a turnover of less than £36 million and a balance sheet of less than £18 million.
- The new threshold will increase to £54 million or a balance sheet of £27 million. Here, there are no changes to the employee thresholds.
- Everything over this will be classified as a large business.
How will these changes affect my business?
While these changes may seem distant, businesses preparing their year-end accounts in 2025 must prepare now. Smaller businesses may no longer need certain data collection. However, those reclassified as small businesses need two consecutive years in this category to benefit from changes, potentially still requiring audits. Even without mandatory audits, businesses may benefit from maintaining audited accounts for credibility, especially for exits or external funding. Investors often expect fully audited accounts, and bank funding terms may hinge on annual audits. Preparation remains crucial despite the perceived distance of these changes.
