Company size thresholds have risen

A company’s size determines several accounting and reporting requirements, including whether an audit is needed. The thresholds which determine size were last updated in 2016. As such, they have been eroded by inflation, meaning more companies have been brought into audit and additional reporting.

In December 2024, the UK government announced changes to the thresholds. The new thresholds will apply for accounting periods beginning on or after 6 April 2025. Excluding short periods, financial years ending April 2026 onwards will benefit from the new thresholds.

We welcome the increases, but it’s frustrating that the implantation approach means the benefit is delayed for most.

What’s changed?

The thresholds for small, medium, and large-sized companies are increased by 50% for turnover and gross assets, while the thresholds for employee numbers are unchanged. Below is a comparison of the new and old limits:

When determining company size for an accounting period starting on or after 6 April 2025, the assessment is made on the basis that the new thresholds have always applied.

What’s not changing?

• The need to breach at least two of the three thresholds to qualify for a particular size; and
• A company must breach the size limits for two consecutive periods to move between sizes. Therefore, the first year that limits are exceeded remains a year of grace, allowing companies time to prepare for any changes.

Implications for Businesses

Audit Exemption: Some companies will no longer require an audit. However, be careful if the company is in a group. A group company will still require an audit if the group is not small, regardless of the size of the individual company.

Simplified Reporting: Companies that move down a size category can benefit from simplified reporting requirements, making compliance easier and less time-consuming.

Some benefits are beyond the accounts, for example, Payments Practices Reporting is driven by the large company thresholds. An increase in the large company thresholds increases the thresholds at which companies need to report this.

Need help?

These changes could reduce your reporting obligations and audit requirements, depending on your company’s size and structure. It’s important to assess how and when they apply to you, especially if you’re part of a group.

Get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk.

James Nichols