New Auditing Thresholds Effective from 5 April 2025

Are you aware of new company thresholds introduced by The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 that are effective from 5 April 2025?

These Regulations increase the financial thresholds that define company sizes – micro, small and medium sized - thereby reducing their reporting burdens by approximately 50% while also simplifying Directors' Report requirements to streamline disclosures.

The table below outlines the new size thresholds, which apply if a company or group (including limited liability partnership) meets any two out of three qualifying conditions in a financial year.

To determine size, companies or groups must meet qualifying conditions for two consecutive years. Similarly, failing to meet them for two years results in a loss of classification. These Regulations include transitional provision that allows companies and LLPs to apply the new thresholds to the previous financial year when determining size for a year beginning on or after 6 April 2025. This enables businesses to benefit from the threshold uplift immediately, as part of the above two-year rule.

How will these changes impact businesses?

The new regulations are expected to shift around 113,000 companies and LLPs to the micro-entity category, 14,000 to small, and 6,000 to medium-sized. Businesses moving to a lower size category will benefit from reduced reporting and audit requirements. Below is a summary of the changes when transitioning between company size categories.

Transitioning from small to micro

Micro-entities prepare a simplified balance sheet with less detail than a standard small company account. Companies moving from small to micro are exempt from filing a directors’ report and are not required to submit a profit and loss statement to Companies House. However, if your company was audited as a small entity, it may still need an audit as a micro-entity if required by your articles of association or requested by shareholders. For more information, refer to Companies House requirements.

Transitioning from medium to small

Small companies are exempt from having their accounts audited (unless part of a group) and from producing strategic report. Small companies can choose to submit a director’s report and profit and loss account to Companies House, as well as file abridged accounts.

Abridged accounts, which require unanimous approval from all company members, include a simplified balance sheet and optional simplified profit and loss account and director’s report. Filing abridged accounts limits the amount of company information publicly available at Companies House.

Transitioning from large to medium

Medium-sized companies can take advantage of exemptions from certain Strategic Report requirements, including a Companies Act 2006 Section 172(1) statement on how directors have had regard to stakeholder and other interests.

A medium-sized company has the option to prepare its accounts in accordance with specific provisions designed for medium-sized companies. Additionally, it can opt to submit simplified information to Companies House.

Changes in Directors’ Report

The Regulations also removes redundant or low-value reporting requirements in the Directors' Report, as outlined in Schedule 7 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Small Companies and Groups (Accounts and Directors' Report) Regulations 2008.

Large and medium-sized entities will no longer be required to include in their Directors’ Report information about:

1. financial instruments;
2. important events that have occurred since the end of the financial year;
3. likely future developments;
4. research and development;
5. branches outside the UK;
6. the employment of disabled people (this requirement is also being removed for small entities);
7. engagement with employees; and
8. engagement with customers and suppliers.

Refer to Explanatory memo for further details.

The way forward

If changes in your company or group’s thresholds have affected its classification, and you're uncertain about the implications, seeking professional guidance is essential.

At Apex Global Consulting Services, we’re here to help. Get in touch with us at info@apexglobalconsultants.co.uk and one of our expert advisers will provide the clarity and support you need.