The Government has announced that it intends to increase the company size thresholds by as much as 50%. The announcement is part of a package of measures by Government to ease the regulatory burden for businesses on reporting. The changes are expected to take effect for businesses with a financial year starting on or after 1 October 2024.
The changes are expected to see 5,000 large companies reclassified as medium-sized businesses with more proportionate reporting. 13,000 medium-sized companies are expected to be reclassified as small businesses allowing them to benefit from potential audit exemption and filing simpler and filleted accounts. Over 113,000 small companies will be reclassified as micro entities allowing them to prepare simpler accounts.
It is important to note that not all businesses will benefit from these changes and some companies, irrespective of size, may still need to have an annual audit. For example, those operating in certain regulated industries, publicly traded businesses, or entities which are part of a medium or large sized group.
Additionally, the Government proposals will include changes to the Directors’ Report and the Directors’ Remuneration Report, removing obsolete or overlapping requirements. It will also consult on providing an exemption from medium-sized companies having to include 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?
These changes may sound like a long way off, with those businesses first caught preparing their year-end accounts in 2025, but preparation is critical.
Businesses that fall into smaller categories may no longer need to collect certain bits of information.
Businesses that are now reclassified as small businesses cannot take advantage of the changes unless they are classified as a small business for two financial years in a row. This means they still may need to be audited.
Where businesses no longer need an audit that does not necessarily mean they shouldn’t continue to be audited. If a business falls into the small business category but owners are planning for an exit down the line, having a history of audited accounts adds credibility. Similarly, if a business is considering external funding, with investors expecting to see fully audited accounts. It should also be remembered that businesses with bank funding may also find the terms of that borrowing are dependent on an annual audit.
To understand how these changes will affect your business contact your usual Hillier Hopkins adviser or contact our expert below.
