The government has published new legislation, The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, to increase the monetary size thresholds for micro, small and medium-sized entities. The uplift in thresholds is part of a drive to cut complexity and reduce the reporting burden on companies. It also accounts for the impact of inflation since the previous thresholds were set in 2013.

New monetary size threshold changes (effective from 6 April 2025)

The table below sets out the new size thresholds that will be met for a financial year if any two of the three criteria are met.

The increased thresholds will also apply to limited liability partnerships (LLPs) via amendments to the regulations that govern them.

Impact of threshold uplift

The government estimates that the new regulations will result in around 113,000 companies and LLPs moving from the small to micro-entity category, 14,000 moving from medium-sized to small and 6,000 moving from large to medium-sized. Companies able to move down a size category will be entitled to the accompanying reduction in reporting and audit requirements.

For entities moving into the small entities regime, the impact will be significant. They will be exempt from the requirement to have a statutory audit of their annual accounts and from producing a Strategic Report. They will also be able to take advantage of simpler accounting requirements. Those moving to the micro entities regime will additionally be exempt from producing a Directors’ Report. 

Those moving from the large to the medium-sized category will be able to take advantage of exemptions from certain Strategic Report requirements, including a statement on how directors have had regard to stakeholder and other interests listed in section 172, CA 2006, otherwise known as the Section 172(1) statement.

The legislation includes a transitional provision that allows preparers to treat the amendments as having been applied in the previous financial year when determining a particular company size. This gets around the so-called ‘two-year consecutive rule’, which requires size thresholds to be satisfied only once the company has met those thresholds in two successive financial years. As a result, companies and LLPs can benefit from the threshold uplift as soon as possible after the legislation comes into force.

Changes to Directors’ Report requirements

In an effort to further lessen the UK’s regulatory burden, particularly with regard to non-financial reporting, the new regulations also remove several obsolete or overlapping requirements relating to the contents of the Directors’ Report. 

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

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

Further information on these changes can be found in the government’s explanatory memorandum.

Additional measures coming soon

Additional measures to remove certain overlapping EU-origin reporting requirements from the Directors’ Remuneration Report, as well as to address technical issues in the audit regulatory framework, will be detailed in a separate piece of secondary legislation, planned to be laid early next year. 

Fahad Asgar, Technical Manager, Corporate Reporting Faculty, ICAEW, welcomes these new regulations as a step forward in making the reporting requirements more efficient and proportional. “We are pleased to see the current government follow through with the previous government’s plans to increase the company size thresholds and streamline other non-financial reporting requirements,” he says. “Ensuring proportionality and removing duplicative reporting requirements is an important first step towards a modernised model for UK corporate reporting.”