How will new Company size thresholds impact your business?

Late last year the UK government has announced significant changes to company size thresholds, which will take effect for financial years beginning on or after 6 April 2025.

Updating audit thresholds means a significant move towards easing administrative burdens for UK businesses, enabling them to redirect resources into growth and innovation. By streamlining reporting requirements and tailoring obligations to the size of each company, the government seeks to foster a regulatory environment that is not only more straightforward but also better aligned with the demands of a fast-evolving economy.

Revised audit thresholds effective 6 April 2025

Effective from 6 April 2025, new regulations will increase the monetary thresholds that define micro, small, and medium-sized entities. This adjustment reflects the impact of inflation since the previous thresholds were set in 2013 and aims to simplify reporting obligations for businesses.

The updated thresholds are as follows:

A company qualifies for a particular category if it meets at least two of the three criteria for that category.

Implications for UK businesses

These changes are expected to have a significant impact:

• Reclassification of companies: Approximately 132,000 companies will transition into smaller reporting categories, benefiting from lighter and more proportional reporting requirements. This reclassification allows businesses to adopt simplified reporting and auditing requirements.
• Audit exemptions: Businesses moving into the small entities regime may become exempt from statutory audits, subject to group membership considerations. This exemption can lead to cost savings and reduced administrative efforts.
• Simplified reporting: Companies reclassified as micro-entities will benefit from lighter reporting requirements, such as exemptions from producing a Directors’ Report, further reducing administrative burdens.

In addition to threshold adjustments, the new regulations remove several reporting obligations from the Directors’ Report for medium and large entities, including disclosure on financial instruments, post-financial year events, future developments, research and development activities and information about branches outside the UK. These changes aim to simplify reporting and eliminate redundant or overlapping requirements.

Transitional Provisions

To facilitate a smooth transition, the regulations include provisions that allow companies to apply the new threshold retrospectively when determining their size for financial years commencing on or after 6 April 2025.

Balancing benefits with financial oversight

While these regulatory changes aim to alleviate compliance costs and encourage business growth, it’s essential for companies to maintain financial transparency and discipline:

• Voluntary Audits: Even if not mandated, conducting voluntary audits can enhance financial oversight, boost investor confidence, and prepare businesses for future growth.
• Stakeholder Trust: Maintaining rigorous financial practices ensures continued trust from investors, lenders, and other stakeholders, which is vital for long-term success.

The upcoming changes to audit thresholds present a significant shift in the UK’s corporate reporting landscape. While many businesses will benefit from reduced regulatory obligations, it’s crucial to balance these advantages with the need for robust financial oversight. Companies should carefully assess their specific circumstances and consider the potential benefits of maintaining certain financial practices, such as voluntary audits, to ensure sustained growth and stakeholder confidence.

How can Verallo support you?

At Verallo, we are committed to guiding you through these regulatory changes and helping you make informed decisions that align with your business objectives. Our expert team is here to assist you in navigating the evolving audit landscape. Contact us at 0203 912 9933 or email info@verallo.com to schedule a free consultation.