The UK’s corporate reporting landscape is about to undergo a major shift. With new regulations set to increase company size thresholds starting 6th April 2025, businesses must prepare for the ripple effects. Here’s what you need to know and how your company can navigate the change.
What’s changing?
In October 2024, the government confirmed that plans to raise the monetary company size thresholds will move forward. In December 2024, legislation was published to make these changes official.
This marks the first major update to size thresholds in many years. The government has gone further than a simple inflationary adjustment, raising thresholds by approximately 50%. This leap aims to future-proof the framework and ensure the UK remains a global hub for business and corporate reporting.
What are the new thresholds?
The turnover and total asset thresholds are being increased as follows. Two of the three criteria must be met for the size classification to apply.
| Micro | Small | Medium | |||
| Current | New | Current | New | Current | New |
Turnover not more than: | £632k | £1m | £10.2m | £15m | £36m | £54m |
Total assets not more than: | £316k | £500k | £5.1m | £7.5m | £18m | £27m |
Average number of employees not more than: | 10 | 10 | 50 | 50 | 250 | 250 |
Note that certain non-monetary factors also affect company size classification, so advice should be taken in any determination of company size.
How do the new company size thresholds impact you?
Companies are classified into four size categories under the Companies Act 2006:
- Micro-entity
- Small
- Medium-sized
- Large
The thresholds determine the level of reporting required, with smaller companies enjoying reduced obligations. The updated thresholds mean that thousands of businesses may now qualify for a simpler, less onerous reporting regime.
Key changes include:
- Around 113,000 companies could move from small to micro-entity status
- Approximately 14,000 companies may transition from medium to small and therefore potentially no longer require an audit
- Another 6,000 companies could now be classified as medium-sized instead of large
What does this mean for reporting?
The UK’s reporting framework is built on proportionality, allowing smaller companies to reduce their administrative burdens. The new company size thresholds create opportunities, but not without challenges.
Micro-entities and small companies
Micro-entities
Companies under the micro-entities regime can use FRS 105, which minimises disclosure requirements. However these accounts are often criticised for lacking meaningful detail, potentially impacting creditworthiness.
Small companies
Under Section 1A of FRS 102, small businesses can omit cash flow statements and omit profit and loss accounts, although the P&L exemption is expected to be removed.
Both small and micro entities are typically exempt from statutory audit. However, care should be taken when checking if a company is audit exempt. This is because non-monetary factors also apply which mean that an audit is required, even if the company is small or micro in terms of turnover, assets and employees.
Medium-sized companies
Medium-sized companies gain exemptions like certain reduced disclosures, and avoiding energy and carbon reporting requirements.
However, businesses considering a downgrade in reporting regime must weigh potential cost savings against long-term implications.
What are the risks?
While simplifying reporting sounds like a win, it’s not always straightforward. For companies on a growth trajectory, switching to a lower reporting standard might disrupt internal processes, only to reverse course as they grow into higher thresholds again.
Concerns also remain about FRS 105. Critics argue that the regime’s limited disclosures leave micro-entity accounts devoid of actionable insights, hampering access to credit and deterring potential stakeholders.
What’s on the horizon?
These threshold changes are just the tip of the iceberg. Other significant developments include:
- Economic Crime and Corporate Transparency Act: Small and micro-entities will soon be required to file profit and loss accounts at Companies House, although it is unknown if these will be available to the public.
- FRS 102 Amendments: The Financial Reporting Council’s latest changes will increase Section 1A (small company) disclosures starting January 2026.
In summary
The government’s move to increase company size thresholds is a significant step toward streamlining corporate reporting and supporting UK businesses. However, businesses should tread carefully, weighing the short-term benefits against potential long-term impacts.
At Gravita, we’re here to help you assess how these changes affect your reporting obligations. Whether you’re evaluating the costs and benefits of moving to a different reporting regime or navigating the complexities of FRS 102 or FRS 105, our experts are ready to guide you.
For further details on the legislation and a tailored review of your reporting requirements, contact Audit partner, Joseph Brewer.
