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The UK Government is set to make significant updates to company size thresholds, with changes expected to come into effect on 6 April 2025. These adjustments, under the Companies (Non-financial Reporting) (Amendment) Regulations 2024, aim to align thresholds with inflation trends while simplifying reporting requirements for smaller companies.
For businesses, these changes bring opportunities for reduced complexity and potential cost savings, but they also necessitate a clear understanding of how the new thresholds may impact their financial reporting obligations.
Why Are the Thresholds Changing?
The company size thresholds determine whether a business is classified as small, medium, or large, which in turn affects the level of financial reporting and auditing required. The thresholds were last updated in January 2016. Since then, inflationary pressures and economic changes have rendered the existing thresholds less reflective of current market conditions. By adjusting these thresholds, the Government aims to reduce the disproportionate regulatory burden on smaller businesses, enabling them to focus on growth rather than compliance.
This initiative is part of a broader effort to streamline legislative reporting requirements and promote a fairer business environment. Updating the thresholds will also ensure that smaller companies have access to simpler financial reporting and, in many cases, can benefit from exemptions from certain audit requirements.
The New Thresholds: What Are the Changes?
The revised thresholds have now been confirmed and will account for both past and anticipated inflation rates. The updated thresholds for a small company are as follows:
Current Thresholds:
New Thresholds:
The adjustments will likely mean some businesses currently classified as medium-sized may qualify as small under the new rules.
Benefits of the New Thresholds
The upcoming changes offer several benefits for businesses:
- Reduced Complexity: Smaller businesses often face challenges in meeting extensive reporting requirements. By raising the thresholds, the Government aims to simplify these obligations, making it easier for companies to produce compliant accounts.
- Potential Audit Exemptions: Companies classified as small may be eligible for exemptions from statutory audits, potentially saving significant costs and resources.
- Focus on Growth: With fewer regulatory hurdles, businesses can redirect their time and resources towards scaling operations and enhancing competitiveness.
Preparing for the Changes
To make the most of the upcoming changes, businesses should take proactive steps to understand how the new thresholds will affect them. Here are a few actions to consider:
- Review Your Current Classification: Assess your company’s turnover, balance sheet total, and employee numbers against the anticipated new thresholds. This will help you determine whether your classification might change.
- Evaluate Reporting Obligations: If your company is likely to be reclassified, consider how this will impact your reporting and auditing requirements. Engage with your accountant or business advisor to explore ways to streamline these processes.
- Plan for Transition: The changes are expected to come into force from April 2025. Use the lead time to ensure your business is prepared, whether that means adjusting financial systems, training staff or reallocating resources.
For further guidance on how these changes may affect your business, get in touch with Henderson Loggie’s Accounting & Business Solutions team by filling out the form below.