Rise in company size and audit thresholds anticipated
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
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.
