New UK Company Size Thresholds

Over time, the UK reporting framework has become increasingly complex. On 18 March 2024, the UK Government announced proposed increases to the company size thresholds, to provide more streamlined and simplified reporting. This will make requirements more proportionate to the size of the company.

It is estimated that these changes will bring approximately 132,000 firms into a lower entity size category for reporting, resulting in reduced compliance and disclosures.

Companies must meet at least 2 of the 3 criteria in either their first financial year or two consecutive financial years to be able to qualify for a particular regime.

Turnover amounts have also been rounded for simplicity, with balance sheet thresholds remaining at 50% of turnover.

The proposed changes affect both the preparers and users of financial statements. It is estimated that 5,000 large companies will be reclassified as medium, 13,000 medium companies reclassified as small and 113,000 small companies reclassified as micro.

Simpler reporting requirements may result in the annual financial statements being quicker and simpler to prepare, as there will be fewer disclosure requirements. Users may also find the financial statements easier to read and understand as less information is provided.

This could have the opposite impact if other stakeholders were using the information disclosed for wider purposes. It is therefore worth considering what information is required by other stakeholders and ensuring this can still be provided.

These changes will also remove some requirements from the Directors' report, Directors' Remuneration Report & Policy, and fix some audit regulatory technical issues.

The Government's current intention is for companies to be able to apply the new size limits to financial years starting on or after 1 October 2024.

This is intended to be the first step in further changes to the UK regulatory financial reporting system. The Government intends to consult on the employee number threshold for medium sized companies later this year, potentially reclassifying the threshold from 250 to 500 employees. This would move even more firms from large to medium, who can then benefit from reduced disclosure requirements.

The Government is also considering the removal of the Strategic report for Medium sized companies as well as a possible removal of the requirements for audit tendering and rotation.

For further information, please contact Sarah Milsom or your usual Albert Goodman advisor.