In October 2024 the Secretary of State for Business and Trade confirmed in a ministerial statement to Parliament that the current Labour Government will take forward the previous plans to increase the threshold.
What are the changes going to be?
Turnover and gross asset limits look to increase by approximately 50% as follows (with current limits bracketed).
| Turnover | Gross assets | Employee number | |
| Micro | Up to £1m (£0.6m) | £0.5m (£0.3m) | Less than 10 |
| Small | £15m (£10.2m) | £7.5m (£5.1m) | 50 |
| Medium | £54m (£36m) | £27m (£18m) | 250 |
These increases are expected to see more than 100,000 small companies reclassified as micro entities, and over 10,000 medium companies being reclassified as small.
When is this coming into force?
Current expectation is that it will come into force for company year-ends commencing on or after 6 April 2025. Effectively for 30 April 2026 year end onwards although there is planning to be considered around extending accounting periods in the 2025 year.
Will the audit thresholds change too?
At the moment, audit exemption thresholds are linked to the small company size limits, therefore it is expected that not only will reporting requirements reduce for these newly small companies, so too will the need for audit – though it should be noted that there will be some exceptions, it is advisable to speak to your accountant or auditor to clarify.
Should I claim audit exemption if I can?
Whilst there is a clear economic benefit of claiming audit exemption where possible, in reduced compliance fees, there are other factors that should be considered, when taking into account the credibility that audit affords to financial statements. Lenders, suppliers, customers and other stakeholders may prefer the assurance given by an audited set of accounts. The future of the business should also be considered in taking this exemption – if there is a planned exit in the short to medium term, an audit can provide additional validation.
Alternatively, consideration could be given to the redirection of those saved compliance fees (which are expected to total £240m) into other advisory or assurance services which otherwise might have been outside of budgetary limits.
Anything else I should know?
As a supplementary review to the changes in company size limits, the Department of Business and Trade is going to undertake a consultation on the Future of Corporate Reporting, which will focus on the simplification and modernisation of non-financial reporting, which will come as a relief to many businesses who find the current regime unnecessarily detailed and cumbersome. This review is also expected to consider some of the previous proposals relating to the redefinition of medium-sized entities (which include the removal of the need for a Strategic Report, and an increase to the in the employee boundary from 250 to 500) which were specifically excluded by Labour in the latest announcement.