From April 2025, the way UK businesses are categorised is set to change, impacting financial reporting, audit requirements, and compliance obligations.
The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 will introduce new size thresholds, redefining what qualifies as a micro, small, or medium-sized company.
What is changing?
To reduce administrative burdens and account for inflation, the Government is increasing the financial criteria that determine business size.
If your company meets two out of three updated criteria, it will fall into a new classification:
Micro entities:
- Turnover: Up to £1 million (previously £632,000)
- Balance sheet total: Up to £500,000 (previously £316,000)
- Employees: 10 (unchanged)
Small businesses:
- Turnover: Up to £15 million (previously £10.2 million)
- Balance sheet total: Up to £7.5 million (previously £5.1 million)
- Employees: 50 (unchanged)
Medium businesses:
- Turnover: Up to £54 million (previously £36 million)
- Balance sheet total: Up to £27 million (previously £18 million)
- Employees: 250 (unchanged)
LLPs (limited liability partnerships) will also be affected by these changes.
How will this impact businesses?
According to Government estimates:
- Around 113,000 companies will transition from small to micro status.
- 14,000 will shift from medium to small.
- 6,000 will move from large to medium.
For these businesses, reduced reporting requirements and compliance obligations will translate into cost savings and streamlined administration.
Audit requirements and reporting obligations
Small businesses will no longer be required to conduct a statutory audit (unless they are part of a larger group).
Micro entities will be exempt from filing Directors’ Reports.
Companies moving from medium to small will no longer need to prepare a Strategic Report.
Businesses moving from large to medium will no longer need to provide a Section 172(1) statement outlining directors’ stakeholder considerations.
Directors’ Reports
From April 2025, medium and large businesses will no longer need to report on certain matters, including:
- Use of financial instruments
- Significant events occurring post-financial year
- Future business developments
- Research and development (R&D) activity
- Details of overseas branches
- Employee and customer engagement efforts
- Employment policies regarding disabled people (also removed for small businesses)
Early eligibility for reduced reporting
Businesses can take advantage of transitional provisions that allow them to apply the new size thresholds retrospectively to the previous financial year.
This means companies can immediately adopt the updated reporting rules when the legislation takes effect.
Steps to take now
With these changes just around the corner, business owners should:
- Evaluate their size classification – Determine whether the new thresholds will affect compliance obligations.
- Plan for new reporting rules – Adjust financial processes to reflect potential reductions in statutory requirements.
- Review audit needs – Consider whether a voluntary audit would still be beneficial.
Need guidance on how these changes apply to your company?
Speak with our accountants today to ensure a smooth transition and compliance with the updated regulations.