Rise in company size and audit thresholds anticipated

28 March 2024

Last updated: 11 December 2024

Christine Scott
Head of Charities and Reporting, ICAS

The UK government is in the final stages of preparing regulations to bring about significant increases in both the company size and audit thresholds, under the Companies Act 2006.

The Companies (Non-financial Reporting) (Amendment) Regulations 2024 are likely to be laid before the UK parliament this summer, with the threshold changes expected to take effect for accounting periods beginning on or after 1 October 2024.

These regulations are part of the government’s response to a wider reform agenda to ease the reporting burdens placed on businesses. Last year, as part of this agenda, the Department for Business and Trade (DBT) issued a call for evidence on non-financial reporting. Company size thresholds fell within the scope of the call, which ICAS responded to.

This article focuses on the proposed changes to thresholds, however, the regulations are also expected to set out changes to the narrative reporting requirements placed on some companies. Look out for a further article on this aspect of the government’s reforms in the coming weeks.

Rationale for the changes

The government believes that increasing the monetary thresholds that determine company size, to take account of past and anticipated future inflation, will reduce disproportionate regulatory burdens on ‘smaller’ companies.

There are no planned changes to the number of employees criterion in each company size category.

The thresholds were last updated for accounting periods beginning on or after 1 January 2016, following revisions to the EU Accounting Directive. If these new changes are implemented as expected, they will apply for accounting periods beginning on or after 1 October 2024.

Existing and proposed threshold changes

Existing company and group size thresholds (net):

2 out of 3 of:	Micro	Small	Medium	Large
Annual turnover	Not more than £632k	Not more than £10.2m	Not more than £36m	More than £36m
Balance sheet total	Not more than £316k	Not more than £5.1m	Not more than £18m	More than £18m
Average no. of employees	Not more than 10	Not more than 50	Not more than 250	More than 250

Existing group size thresholds (gross):

2 out of 3 of:	Micro	Small	Medium	Large
Annual turnover	N/A	Not more than £12.2m	Not more than £43.2m	More than £43.2m
Balance sheet total	N/A	Not more than £6.1m	Not more than £21.6m	More than £21.6m
Average no. of employees	N/A	Not more than 50	Not more than 250	More than 250

Proposed company and group size thresholds (net):

2 out of 3 of:	Micro	Small	Medium	Large
Annual turnover	Not more than £1m	Not more than £15m	Not more than £54m	More than £54m
Balance sheet total	Not more than £500k	Not more than £7.5m	Not more than £27m	More than £27m
Average no. of employees	Not more than 10	Not more than 50	Not more than 250	More than 250

Proposed group size thresholds (gross):

2 out of 3 of:	Micro	Small	Medium	Large
Annual turnover	N/A	Not more than £18m	Not more than £64m	More than £64m
Balance sheet total	N/A	Not more than £9m	Not more than £32m	More than £32m
Average no. of employees	N/A	Not more than 50	Not more than 250	More than 250

Audit exemption

The small company audit exemption in section 477 of the Companies Act 2006 is directly referenced to the small company thresholds in section 382 of the Act. The audit exemption threshold will therefore rise accordingly, as set out above.

Number of companies impacted by the changes

The estimated impact of size threshold increases, in terms of companies in particular categories, is set out below.

Estimated number of companies, adjusted for reporting regime eligibility criteria (to the nearest 1,000):

Effective size	Current size criteria	With 50% uplift	Net change in size-band
Micro	3,168,000	3,281,000	+113,000
Small	381,000	281,000	-100,000
Medium	49,000	40,000	-9,000
Large	104,000	99.000	-5,000

Companies will need to consider the potential impact on their reporting and audit requirements. In turn, accountancy advisers may wish to consider the impact on their client portfolios, bearing in mind that these draft regulations are subject to change.

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