Company Size Thresholds to Increase by 50% Starting October 2024

For the first time in almost a decade, the UK Government has increased the company threshold size limits to reassess which accounting basis companies are able to use to prepare their financial statements.

In this article, Dylan Page-Matthews, Audit Manager, highlights the company threshold changes and the impact expected to have on UK businesses effective on or after 1st October 2024.

Company Threshold Changes and sizes

	Micro		Small		Medium
	New	Existing	New	Existing	New	Existing
Turnover	£1m	£632k	£15m	£10.2m	£54m	£36m
Gross Assets	£500k	£316k	£7.5m	£5.1m	£27m	£18m
Employees.	10	10	50	50	250	250

As with the previous legislation, a company must meet two of the above criteria to qualify for company size exemptions. There remains a grace period of a year, so a company must breach the size thresholds for two consecutive years to be excluded from the exemptions of an individual size bracket.

Impact – How will businesses be affected?

These new size limits are expected to impact approximately 130,000+ companies. However, it is worth noting that if a company has a significant growth trajectory any, step down in the accounting regime is likely to only be temporary and a significant change in accounting basis, where a structure is already in place, and could result in inefficiencies as the company will be required to move back to its original basis in a few years’ time.

The Government’s rationale behind these changes is somewhat linked to the European Commission’s decision earlier this year to increase the equivalent thresholds by an inflationary 25%. However, the UK government has increased the thresholds significantly beyond this to bring in a degree of futureproofing.

Small & Micro entities

Small entities, including micro entities, have no requirement to prepare a cash flow statement or strategic reports and are entitled to apply section 1A of FRS102 to produce financial statements with minimal disclosures being required.

Micro entities may choose to apply FRS105 and prepare simplified micro entity accounts, which operate as an even more significantly reduced disclosure requirement to s1A for small companies. However, when considering this, micro entity accounts may not be sufficient for the purposes of obtaining future funding from lenders and creditors, as the accounts, likely, do not offer the credit providers adequate information.

Small and micro entities qualify to file reduced financial statements, including no requirement to publish a profit and loss statement or a director’s report, reducing the level of information available for the public to see. However, the Economic Crime and Corporate Transparency Act, which is due to come into force in the next year, will remove the reduced filing ability for smaller entities, and all companies will be required to file profit and loss accounts with Companies House.

Small and micro companies are also often exempt from statutory audit requirements, resulting in reduced compliance costs for the business.

Medium Entities

Medium companies are permitted to prepare a slightly more simplified set of financials, including reduced requirements on the profit and loss account, and are not required to include a s172 statement or energy and carbon reporting within their strategic report.

Additional considerations

Alongside the numerical size criteria in the above table, other factors remain in place to consider whether a company is excluded from the small companies’ regime. These factors include:

• Public companies (plc)
• certain financial service companies, including insurance providers and banks.

A complete list of the categories that cause ineligibility is available from the following link: Entitlement to the small companies regime | ICAEW

As a business owner or financial professional, it’s essential to stay informed about the changing regulations and thresholds affecting companies. For more information on any of the points raised in this article, email Dylan at Dylan Page-Matthews dylan.page-matthews@lbgroupltd.com, who can provide guidance and help your business prepare for the upcoming changes set to take effect from October 2024.

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