Changes coming to UK company size thresholds: what are they and will they impact your business?

By Kristina Perry, Partner, Carpenter Box.

The UK government has revised the thresholds that determine the size of a company or group of companies. These changes will impact many businesses regarding their financial reporting and statutory audit requirements.

What are company size thresholds and what are the changes?

Company size thresholds are benchmarks used to classify companies and groups as small, medium, or large.

These classifications determine financial reporting and statutory audit requirements. Effective from April 2025, the thresholds (turnover, gross assets and number of employees) have been increased to take into account inflation and economic growth. These changes mean that some companies currently classified as medium-sized may now fall under the small category, and similarly, some large companies may be reclassified as medium-sized.

What are the new thresholds?

The following new company size thresholds will be effective for financial periods beginning on or after the 6 April 2025:

	Micro current	Micro new	Small current	Small new	Medium current	Medium new
Turnover	£632k	£1m	£10.2m	£15m	£36m	£54m
Gross assets*	£316k	£500k	£5.1m	£7.5m	£18m	£27m
Average number of employees	10	10	50	50	250	250

A ‘two-year rule’ applies when determining size. This means that a company only ceases to be small (or medium) once it has breached at least two of the above limits for two consecutive reporting periods. There are transitional provisions included in the new legislation that will allow for the new limits to be applied for the comparative period to ensure that the ‘two-year rule’ still applies in substance.

A group of companies can use the above thresholds to determine size when the results of the group are aggregated, and inter-company transactions are eliminated. Alternatively, ‘gross’ limits can be applied when inter-company transactions are not eliminated to determine group size. It is also possible to use a mixture of the gross and net limits.

The gross thresholds are as follows:

	Small current	Small new	Medium current	Medium new
Turnover	£12.2m	£18m	£43.2m	£64m
Gross assets	£6.1m	£9m	£21.6m	£32m
Average number of employees	50	50	250	250

What will the impact of the revised thresholds be?

The government estimates that the new regulations will result in:

• 6,000 large companies being reclassified as medium-sized to access more proportionate reporting.

• 14,000 medium-sized companies falling into the small companies’ regime, potentially benefitting from audit exemption and filing simpler accounts.

• 113,000 small companies falling into the micro-entities’ regime to allow them to prepare simpler accounts.

The revised thresholds will:

• Reduce the financial reporting requirements of a number of companies and groups in terms of financial statement disclosures.

• Reduce the number of companies and groups that will be required to have statutory audits as size has a direct impact on audit obligations. This may place greater responsibility on directors and management to ensure financial transparency if an audit is no longer performed.

Changes to Directors’ Report requirements

In addition, the new regulations also remove several obsolete or overlapping requirements relating to the contents of the Directors’ Report.  Large and medium-sized entities are no longer required to include information on:

• financial instruments;

• important events that have occurred since the end of the financial year;

• likely future developments;

• research and development;

• branches outside the UK;

• the employment of disabled people (this requirement is also being removed for small entities);

• engagement with employees; and

• engagement with customers and suppliers.

Steps to take now

To prepare for these changes, businesses should:

• Assess whether the revised thresholds will change their size classification.

• Inform stakeholders of the changes and outline the steps being taken to maintain transparency and accountability.

• Consult with their accountants and auditors (where applicable) to ensure a smooth transition when the new thresholds come into effect.

Need further guidance?

The upcoming changes to UK company size thresholds mark a significant shift in the regulatory landscape. While the revisions aim to reduce compliance burdens for smaller businesses, they also demand a proactive approach to financial management and governance.

At Carpenter Box we can provide support in determining the statutory size of a company or group. If you have any questions, please get in touch with a member of our accounts or audit team by calling 01903 234094 or visit
www.carpenterbox.com