As of 6 April 2025 new regulations (The companies (Accounts and Reports) (Amendment and Transitional Provisions) Regulations 2024) will come into force, which will significantly increase the thresholds for companies and has made consequential amendments to certain audit and reporting requirements. In a further effort to reduce administrative burden, the regulations lighten the content of the directors’ report which is part of the annual accounts. This should help relieve the costs of audits and disclosures for a high number of companies and thus to a reduce the administrative burden companies face, particularly for smaller companies.
Background for these changes is that the latest thresholds were set in 2013 thus needing adjustments to inflation developments. The changes are also following the deregulatory objective of the current government. Adjusting to inflation developments and following the deregulatory objective of the current government.
The new thresholds are as follows:
| Specifications | Micro | Small | Medium | Large |
| Turnover (£): | < 1 m (old 632k) | < 15 m (old £10.2m) | < 54 m (old 36m) | >54m |
| Balance sheet total (£) | < 500k (old 316k) | < 7.5m (old 5.1) | < 27m (old 18m) | >27m |
| Monthly average number of employees: | < 10 (old 10) | < 50 (old 50) | < 250 (old 250) | >250 |
The changes will also affect limited liability partnerships (LLPs).
Impact of Threshold Increase
Companies moving into a lower size category will benefit from reductions to their reporting and audit requirements.
For example, where medium companies will now fall into the small company category, they will be exempt from requirements to have a statutory audit of their annual accounts (subject to group accounting requirements) and from producing a strategic report. Companies moving into the micro category omits the need to produce a director’s report. Micro and small companies can adopt simpler accounting requirements to follow under relevant accounting standards and medium-sized companies are exempt from certain strategic report requirements.
Transitional Period
The new regulations provide for a transitional period, which allows companies to treat the new thresholds and provisions as having been applied in the previous financial year. This circumvents the usual “two-year-rule”, which requires size thresholds to be satisfied for two successive financial years. This means that companies and LLPs can benefit from the thresholds immediately once the regulations have come into force.
In addition to the increase of the thresholds, the regulation removes several requirements from the directors’ report. Large and medium sized companies will not need to include in their directors report information on
- financial instruments;
- important events that have occurred since the end of the financial year;
- likely future developments;
- research and development;
- branches outside the UK;
- the employment of disabled people (this requirement is also being removed for small entities);
- engagement with employees; and
- engagement with customers and suppliers.
Conclusion
As it becomes more and more important to keep up to date with correct set up and filing of your accounts, these reductions will become a helpful relief. To help with the efficiency your business and to avoid unnecessary administration, you should get into contact with your advisors to update the necessary requirements for your company.
