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A photo of construction tape on a wooden floor| AccountingWEB | UK company size thresholds planned for increase
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UK company size thresholds to increase

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The government has revealed deregulatory measures to simplify financial reporting for small to medium enterprises, including raising the company size thresholds. Steve Collings explores the details.

21st Mar 2024
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On 18 March 2024, the government announced its first set of planned regulatory changes which are designed to ease the burdens placed on business in respect of non-financial reporting.

Legislation is planned to be laid this summer to increase the size thresholds that determine the size of a company by 50% to cut complexity and burden from legislative reporting requirements.

The effect of the changes is expected to see:

  • 5,000 large companies being reclassified as medium-sized to access more proportionate reporting;
  • 13,000 medium-sized companies falling into the small companies’ regime enabling them to benefit from potential audit exemption and filing* simpler accounts; and
  • 113,000 small companies falling into the micro-entities’ regime to allow them to prepare simpler accounts.

*Of course, small companies and micro-entities are going to be subject to changes to their filing requirements in due course through secondary legislation issued as part of the Economic Crime and Corporate Transparency Act 2023 which is currently awaited.

Planned size thresholds

If the new measures are implemented, the table below outlines the revised thresholds:

 

Two out of three of: Micro

Small

Medium

Large

  Old New Old New Old New Old New
Annual turnover Not more than £632k Not more than £1m Not more than £10.2m Not more than £15m Not more than £36m Not more than £54m £36m+ £54m+
Balance sheet total Not more than £316k Not more than £500k Not more than £5.1m Not more than £7.5m Not more than £18m Not more than £27m £18m+ £27m+
Average number of employees Not more than 10

Not more than 50

Not more than 250

251+

Further proposals

The government also plans to remove several low-value, obsolete or overlapping requirements from the Directors’ Report and the Directors’ Remuneration Report as well as making it easier for companies to issue digital annual reports. The government also plan to fix some technical issues in the audit regulatory framework which have been identified following the transposition of EU law into UK law.

The government also plans to consult later in 2024 on amending the definition of a medium-sized company for company reporting. This aims to increase the threshold on the maximum number of employees to be classed as a medium-sized company from 250 to 500. It will also consult on providing an exemption from medium-sized companies having to include a strategic report in the annual report and exempting smaller public interest entities from audit tendering and rotation requirements.

Effctive date

The government intends that companies will be able to benefit from these changes for financial years commencing on or after 1 October 2024.

Further information will be made available as it is received.

Replies (12)

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By Paul Crowley
21st Mar 2024 09:53

Accounts years ended March 2026 for the standard date company. I will have forgotten about it by then.

Thanks (2)
Replying to Paul Crowley:
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By FactChecker
21st Mar 2024 20:26

As, probably, will whoever is drafting/approving/publishing the legislation by then.

Not really for an Accounting forum ... but has there been any indication whether the revised definitions of company size will apply across the board (i.e. not just to accounts and filing)?
They are used in a wide variety of categories, from things like Pay Gap reporting to (aah the list is too long for me to be bothered)!

Thanks (1)
Replying to FactChecker:
John Toon
By John Toon
22nd Mar 2024 09:13

I haven't looked at the detail but much of the "other" reporting tends to refer to the limits detailed in CA2006, unless specifically overriden by separate definitions. You'd have to go legislation by legislation to check - something for ICAEW/ACCA to do...

Thanks (1)
Replying to johnt27:
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By FactChecker
22nd Mar 2024 13:39

That's a lovely shiny large dollop of optimism you've acquired there, John!
Unless of course it was healthy scepticism (hard to tell in this medium)?

I'm meeting a few of them next week and will take the opportunity to ask ... but don't expect it to be high on their priorities list (especially all the 'non-accounting' ones where this definition spills over into not just returns, but aspects of employment law and many eligibility/entitlement criteria to 'corporate benefits'.

I suspect another missed (if small) opportunity for simplification/rationalisation.

Thanks (1)
By jon_griffey
21st Mar 2024 10:34

This is certainly welcome, but appears to be less than RPI increase since the thresholds were last increased in 2016 so we are no further forward in real terms. It needs a much bigger increase to balance sheet total if we are going to be putting operating leases on the balance sheet - that will drag a lot more companies into audit.

Thanks (0)
Replying to jon_griffey:
John Toon
By John Toon
21st Mar 2024 10:47

Always love these kind of comments. Depending on your benchmark (including the one you picked) the data would indicate limits should be lower rather than higher...

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Replying to johnt27:
By jon_griffey
21st Mar 2024 15:13

Its logical to take the date of the last increase 1 Jan 2016 and add RPI. £10.2M becomes £15.04M. Regardless of the exact measure, it is there or thereabouts just an inflationary increase to put us back where we were in 2016 - not some grand deregulatory measure. The Government needs to be bolder.

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By petestar1969
21st Mar 2024 10:57

This sounds like good news, but with the upcoming General Election and likely change of government, will it actually happen?

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Tornado
By Tornado
21st Mar 2024 13:14

No mention of also updating the criteria for Audit Exemption to align with this.

Thanks (1)
Replying to Tornado:
Flag of the Soviet Union
By thevaliant
02nd Apr 2024 12:53

The obvious idea would be to decouple the audit requirement from the small company limit, or even to just do what they should do and make 'SMEs' audit exempt.

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By adam.arca
21st Mar 2024 13:50

In what world is a company with £1m sales (and which will therefore have a decent number of staff and which will both owe and be owed meaningful amounts of money and which will presumably have a meaningful balance sheet) considered a "micro" business?

They should be reducing that limit massively, not increasing it.

Thanks (2)
7om
By Tom 7000
21st Mar 2024 19:00

13,000 companies x 10k = 130m
Staff pay 50k
That's 2600 staff on the market in late 2025....

Ooohhhhh....

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