Proposed New UK Company Size Thresholds

Plans announced to change company size thresholds for financial years commencing on or after 1 October 2024.

Prime Minister Rishi Sunak has announced the government’s intention to implement long awaited changes to company size thresholds for financial years commencing on or after 1 October 2024. This would be the first change in thresholds since January 2016, with inflation over the period bringing more and more companies into larger size categories. If passed into law, the government estimates that approximately 132,000 companies will move into a lower size category as a result of the changes.

What are the thresholds used for?

The size of a company is calculated on the basis of statutory thresholds in respect of turnover, gross assets and the average number of employees in the reporting period. Companies must meet at least 2 of the 3 criteria in either their first financial period, or for two consecutive financial periods in order to fall within a particular size category. A company’s size determines the financial reporting standards they are eligible to adopt and the level of disclosure required in the annual accounts filed at Companies House.

Who will be affected?

The proposed changes are to the size limits for non-charitable companies only. For charities registered with the Charity Commission for England and Wales (CCEW) and complying with the Charities Act 2011, the size limits determining whether an independent examination or audit is required remain unchanged.

Any future such changes will be dependent on a new Charities SORP, which is not likely to be issued until after the company changes have been enacted into law.

What are the current thresholds and proposed changes?

What has the reaction to the announcement been?

Nigel Sleigh-Johnson, Director of Audit and Corporate Reporting at the ICAEW welcomed the changes, noting that “thresholds and scoping requirements have become an increasingly complicated aspect of the UK non-financial reporting framework in recent years.”

However, he went on to say that “while there is much more to do, updating the company size thresholds for reporting set out in the Companies Act 2006 is an important first step towards a modernised model for UK corporate reporting.”

Are there further announcements to come?

In addition to implementing the above changes into law, the government intends to consult on increasing the average number of employees threshold for medium companies from 250 to 500.

They also intend to consult on streamlining certain aspects of financial reporting for these entities, such as exempting them from the requirement to prepare a strategic report.

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