Upcoming changes to company size thresholds in the UK: What you need to know

The Labour Party has confirmed its intention to advance the legislation put forward by the previous UK government. This legislation seeks to introduce substantial modifications to company size thresholds, impacting small and medium-sized enterprises (SMEs) across the nation. The proposed changes include increasing turnover and gross asset size thresholds by approximately 50%. This legislation is scheduled to be presented to Parliament by the year's end and is anticipated to come into effect on 6 April 2025.

Here is a detailed look at what these changes entail and how they might affect your business:

Key changes to company size thresholds

The new company size thresholds will increase and impact the type of financial statements a company prepares and whether it requires a statutory audit. The thresholds for turnover, gross assets, and employee numbers are all set to rise, meaning many small companies will no longer be required to undergo mandatory audits. Specifically, the new thresholds are as follows:

• Micro entities: Turnover from £632,000 to £1 million; Gross assets from £316,000 to £500,000; Employee numbers remain at 10.
• Small companies: Turnover from £10.2 million to £15 million; Gross assets from £5.1 million to £7.5 million; Employee numbers remain at 50.
• Medium-sized companies: Turnover from £25 million to £54 million; Gross assets from £18 million to £27 million; Employee numbers remain at 250, with a consultation planned to potentially increase this to 5001.

Implications for businesses

For an estimated 132,000 companies, these changes mean that they will not meet the definition of a small company, and their audits will no longer be compulsory. This shift allows these businesses to redirect financial resources previously allocated for auditing towards other critical areas of growth and innovation. However, this exemption also brings new challenges. Reduced financial transparency and oversight could potentially impact stakeholder trust and investment. Therefore, it's crucial for companies to weigh the benefits of reduced audit costs against the value of voluntary audits in maintaining robust financial health and investor confidence.

Preparing for the changes

In addition to the changes to company size thresholds, further changes include removing several outdated or overlapping requirements related to the directors’ report and the directors’ remuneration report. As these changes are implemented, it is important for businesses to stay informed and consult with their advisors to make decisions that align with their long-term objectives.

Our team of experienced professionals are here to help you navigate these changes and ensure a smooth transition. If you need expert advice on how these changes will impact your business, don't hesitate to speak to your usual contact at James Cowper Kreston. Alternatively, contact our Audit & Assurance team here to discuss your specific circumstances and how we can help maximise your potential.