The changes mean that more companies and LLPs will likely qualify as small. Some companies and LLPs who have just breached the original threshold may also have to negotiate their way through a one year audit before the need falls away again.
For financial years beginning on or after 6 April 2025, thresholds increase as follows:
| Current rules | Rules from 6 April 2025 | |||||
| Revenue not more than | Total assets not more than | Monthly average employees not more than | Revenue not more than | Total assets not more than | Monthly average employees not more than | |
| Micro | £632k | £316k | 10 | £1m | £500k | 10 |
| Small | £10.2m | £5.1m | 50 | £15m | £7.5m | 50 |
| Medium | £36m | £18m | 250 | £54m | £27m | 250 |
The size thresholds are met if any two of the three criteria are met; and the requirement to prepare accounts relating to the relevant size applies if the size thresholds are met in two consecutive years.
The legislation includes a transitional provision however that allows the size threshold changes to be applied in the previous financial year when determining a particular company size post 6 April 2025. This allows the benefit of the threshold uplift to be applied as soon as possible after 6 April.
Groups can choose to measure the thresholds against either statutory revenue and total assets (after intercompany eliminations), or against gross revenue and assets (before intercompany eliminations). The most favourable position can then be taken. The increased thresholds will also apply to LLPs.
The government estimates that the new regulations will result in around 113,000 companies and LLPs moving from the small to micro category, 14,000 moving from medium to small and 6,000 moving from large to medium. Moving down a size category can bring many benefits as it is likely to result in a reduction in reporting and audit requirements.
Below are some examples of how the changes might impact clients in practice:
- Should an entity that is currently small be classified as micro after 6 April, it will be able to apply FRS 105. This will allow simplified accounting rules to be used which do not bring leases onto the balance sheet.
- Entities that can be classified as micro or small after 6 April will be able to produce accounts that have fewer disclosures. They will also be able to file filleted accounts at Companies House.
- Entities that can be classified as small entities in small groups after 6 April can potentially be eligible for audit exemption.
- Parents of groups that can be classified as small after 6 April will not need to prepare consolidated accounts.
- Entities now classified as large but classified as medium after 6 April will not need to present a section 172 statement going forward.
The new regulations also remove several obsolete or overlapping requirements relating to the contents of the Directors’ Report.
The implications of the changes are likely to be complex and care should be taken when considering the requirements for all accounting periods starting after 6 April 2025. This is particularly important when considering the impact of the changes across a group as there are many potential pitfalls to avoid in this case.
As ever, professional advice should be sought in advance of making any changes. Please speak to Huw Sheppard at huw.sheppard@kilsbywilliams.com and 01633 654155 or your usual Kilsby Williams contact to discuss.
