Increase to Company Size Thresholds

UK company size thresholds have increased with effect for periods commencing on or after 6 April 2025. This change was initially announced in 2024, and has now come into force after a delay caused by the change in government last year. The new thresholds have reduced reporting requirements for a significant number of companies in the UK, with the government estimating that over 133,000 companies will move down a size category as a result of the new rules.

The New UK Audit Thresholds

In the table below, we have summarized the new thresholds for each size category. Companies must satisfy at least 2 out of the 3 requirements to be classified as that size.

The Impact of Company Size Thresholds Increasing

With fewer companies in the UK now classed as a large company, with around 6,000 expected to move from large to medium, these companies can now benefit from certain reporting exemptions. For example, large companies must include a statement on how their directors have complied with their duty under section 172(1) of the Companies Act 2006 as part of their Strategic Report. However, for companies moving from the large to medium category, this will no longer be required – a significant reporting relief for these companies.

There are multiple benefits that many companies will face as a result of the thresholds increasing. We’ve summarized some of the key changes below:

Transition Rules

Usually, a company would have to meet company size limits for two consecutive years  before being able to change size category. This is to prevent companies from bouncing back and forth between different categories every time their financial position changes.

However, with the announcement of the new company size thresholds increasing, the government has introduced a transition rule, where companies can assume the new thresholds were applicable in the previous financial year as well. This allows them to move into their new size category immediately, rather than waiting for 2 years.

Changes to Directors Report Requirements

For micro companies, Director’s Reports are not a requirement, meaning for approximately 113,000 companies moving from small to micro, this is no longer something they need to consider.

However, for companies who do still need to prepare a Director’s report, there has been a number of changes to the requirements. The Director’s Report for large and medium entities no longer needs to include:

• The use of financial instruments
• Important events that have occurred since the end of the financial year
• Likely future developments in the business of the company
• Research and development activities
• The existence of branches outside the UK
• The employment, training and advancement of disabled persons (this requirement is also removed from directors' report requirements for small entities); and
• Engagement with employees, suppliers, customers and others.

What does this mean for you?

The company size thresholds increasing will ease the reporting burdens for many companies across the UK. However, this does not mean that reporting is no longer needed. If you are looking for a personable, high-quality adviser to help take care of your financial reporting requirements, contact us for a free initial meeting.