UK company size thresholds to rise from 1 October 2024

On 18 March 2024 the Prime Minister announced increases to the company size thresholds which determine whether a company is a micro-entity, small, medium, or large-sized company. The aim of these measures is to simplify non-financial reporting and ease the administrative burden on small and medium-sized companies.

The proposed changes are due to take effect from 1 October 2024. Financial years ending on or after 30 September 2025 will be the first to be affected. The thresholds are due to increase by 50% and have the following impacts:

  • 5,000 large companies to be reclassified as medium-sized;
  • 13,000 medium-sized companies to be reclassified as small; and
  • 113,000 small companies to be reclassified as micro-entities.

Here we summarise the current thresholds, proposed increases, and what impact this will have on those companies affected by the changes.

What are the current thresholds?

Currently companies are classified as micro-entities, small, medium, or large-sized in relation to three criteria. Companies must satisfy at least two of these criteria and get a year’s “grace”. This means they need to have exceeded the relevant thresholds two years in a row before being reclassified.

Micro-entity Small Medium Large
Annual turnover ≤£632k ≤£10.2m ≤£36m >£36m
Gross assets ≤£316k ≤£5.1m ≤£18m >£18m
Average employee numbers ≤10 ≤50 ≤250 >250

What are the proposed increases?

The Pime Minister has proposed to increase these thresholds by 50%. Given the thresholds have remained unchanged since 2016, this is a welcome change as it takes into account past and anticipated future inflation.

Micro-entity Small Medium Large
Annual turnover ≤1m ≤£15m ≤£54m >£54m
Gross assets ≤£500k ≤£7.5m ≤£27m >£27m
Average employee numbers ≤10 ≤50 ≤250 >250

It’s worth noting that although the proposed changes do not currently include an increase to average employee numbers, the Government plans to consult on this later in the year. As part of this, there is a view to increase the threshold for medium-sized companies from 250 to 500.

The Government are also planning to consult on the removal of a requirement for medium-sized companies. If supported it will mean they no longer need to include a strategic report in the annual report. They are also considering exempting smaller public interest entities from audit tendering and rotation requirements.

What impact will this have on those companies affected?

The larger a company gets the more intricate its reporting requirements become. Furthermore, micro-entities and small companies benefit from a number of exemptions which medium and large-sized companies don’t. Most notably the exemption from having their financial statements audited. These changes will therefore be welcomed by those companies who end up getting reclassified downward. It will reduce the complexity of their financial reporting and the administrative burden that comes with it, freeing up time and resources to focus on core activities.

Medium-sized companies that get reclassified as small will also potentially no longer need to have their financial statements audited. The is likely to result in significant cost savings.

Other considerations

Medium-sized companies that end up getting reclassified as small will benefit from simplified reporting and a number of disclosure exemptions. It’s worth noting the Economic Crime and Corporate Transparency Act 2023 is likely to come into effect later this year. This will, among other things, mean that both micro-entities and small companies will no longer be exempt from filing a profit and loss account at Companies House. Furthermore, small companies will no longer be exempt from filing a directors’ report with their annual accounts.

Companies benefiting from the audit exemption due to the proposed changes should consider how this will affect stakeholder relationships. They will need to decide whether or not to take advantage of the exemption.

Afterall, the purpose of an audit is to provide a company’s stakeholders with assurance that its financial statements give a “true and fair view” of its performance and position. It may be in these companies’ best interest to continue with voluntary audits of their financial statements. This will help to maintain strong stakeholder relationships.

Westcotts’ business and audit services

At Westcotts we have a large business and audit services team offering anything from the preparation of micro-entity and small company accounts to the audit of medium and large-sized company financial statements. We are well placed to advise on the impacts of these changes and how they affect your business.

If you need help in understanding how the proposed changes will affect your company and its reporting requirements then get in touch with your local branch via the Get In Touch section of our website.

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