Audits and Assurance: proposed increases to company size thresholds to take effect this October

At Verallo, we are dedicated to keeping you informed about critical updates in audit and assurance regulations that may impact your business.

With the United Kingdom no longer bound by the maximum EU thresholds for determining company size, the former Prime Minister announced on March 18, 2024, the Government’s proposals to increase the thresholds that determine a micro-entity, small, medium and large business. These changes aim to reduce complexity and reporting burdens for businesses. Given that the last adjustments were made in 2016, the new thresholds also account for price changes over the intervening years.

The proposed thresholds, which have not yet been enacted, are expected to take effect for accounting periods starting on or after October 1, 2024, represent a notable shift in the audit landscape and could influence a wide range of businesses. However, in light of the recent Election results, and Labours plans for a new Audit regulator, in the form of ARGA (Audit, Reporting and Governance Authority) it is anticipated that there will be further regulations changes within the UK, in the near future.

In this article we outline the key changes proposed for company size threshold increases and discuss key criteria and considerations.

Key changes to company size thresholds

Recent amendments have increased monetary thresholds that determine company size, raising these by 50%. These thresholds pertain to turnover and balance sheet total. The number of employees remains unaffected. We summarise the threshold changes below:

Micro-entity

Current turnover: Not exceeding £632,000

Proposed change: £1m

Current total assets: Not exceeding £316,000

Proposed change: £500,000

Current employees: Not exceeding 10

No changes: 10

Small company

Current turnover: Not exceeding £10.2m

Proposed change: £15m

Current total assets: Not exceeding £5.1m

Proposed change: £7.5m

Current employees: 50

No changes: 50

Small Group

 Current turnover: Not exceeding £10.2m net / £12.2m gross

Proposed change: £15m net / £17.94m gross

Current total assets: Not exceeding £5.1m net / £6.1m gross

Proposed change: £7.5m net / £17.94m gross

Current employees: 50

No changes: 50

Medium company

Current turnover: Not exceeding £36m

Proposed change: £54m

Current total assets: Not exceeding £18m

Proposed change: £27m

Current employees: 250

No changes: 250

Medium Group

Current turnover: Not exceeding £36m net / £43.2 gross

Proposed change: Not exceeding £54m net / £64.8 gross

Current total assets: Not exceeding £18m net / £21.6 gross

Proposed change: £27m net / £32.4 gross

Current employees: 250

No changes: 250

These adjustments mean that more companies may now fall below the threshold, potentially exempting them from mandatory audits. This change is expected to reduce the administrative and financial burden on smaller businesses, allowing them to allocate resources more effectively towards growth and development.

Considerations

To qualify as a specific size category, a company must meet two out of three thresholds. Company’s that are part of ineligible groups, like traded companies or those in insurance market activities, cannot qualify as micro-entities, small, or medium-sized. The former Government’s announcement did not provide details on small and medium-sized group thresholds, so it is assumed the proposed gross amounts will have a similar uplift as current figures. Parent company size can be determined using either net or gross basis, where net basis includes consolidation adjustments and gross basis does not.

These changes are expected to be implemented along with the removal of the option to file ‘filleted’ accounts at Companies House for small-sized and micro-sized entities, as mandated by The Economic Crime and Corporate Transparency Act. Additionally, the former Conservative Government planned to consult on amending the definition of a medium-sized company, possibly increasing the employee threshold from 250 to 500 and exempting medium-sized companies from preparing a strategic report.

Further changes under a Labour government?

While these changes are set to provide significant relief for many businesses, it is important to consider the potential impacts of the recent General Election. Policy shifts and new legislative priorities under a Labour government could influence the implementation and stability of these threshold changes. Political outcomes often lead to regulatory adjustments, and businesses must stay vigilant to ensure they remain compliant.

At Verallo, we understand that navigating these changes can be complex. That’s why our team of experts is here to support you through every step of the process. We offer comprehensive audit and assurance services tailored to meet your unique needs, ensuring that you remain compliant and well-prepared for any regulatory shifts.

Get in touch

Our goal is to help you understand the implications of these threshold changes and how they might affect your business.

For more information on how these changes might impact your business and how Verallo can support you in adapting to new thresholds, email us on info@verallo.com or call 0203 912 9933.