Bigger is Better?
The Impact of Changing Company Size Thresholds on UK Businesses

Get ready for a shake-up in the world of corporate reporting! The UK government is gearing up to increase the monetary thresholds that determine company size by 50% with the law-making process starting from October 2024. This move is set to have a significant impact on the reporting obligations of businesses across the country.

What does this mean for you and your company?

Well, it all depends on your size. The Companies Act 2006 currently divides businesses into four categories: micro-entity, small, medium-sized, and large. Each category comes with its own set of reporting requirements, and the upcoming changes could see many companies moving down a size bracket.

What are the proposed new size limits?

Companies must meet at least 2 of the 3 criteria in either their first financial year or two consecutive financial years to be able to qualify for a particular regime.

Everything over the medium sized limits will be classified as a large business.

Are there further changes coming down the line?

Later in 2024, the Government proposes to consult on the following:

• Amending the definition of a medium-sized company for reporting purposes, so the threshold on the maximum number of employees will be increased from 250 to 500
• Exempting medium-sized companies from having to produce a strategic report
• Exempting smaller public interest entities (PIEs) from audit tendering and rotation requirements

What does all this mean for your business?

For now, businesses must wait for secondary legislation and the important transitional provisions to understand the specific timing and application of these proposals.  These changes may sound like a long way off, with those businesses first caught preparing their year-end accounts in 2025, but preparation is critical.  It’s time to take a close look at your reporting processes and consider the potential impact of these changes. While the reduced requirements may be tempting, it’s important to weigh up the pros and cons and make a decision that’s right for your company’s long-term growth and success.

BRAVE Thoughts

At first glance, this might seem like a cause for celebration. Less reporting means less paperwork and more time to focus on growing your business, right? Not so fast! While the reduced requirements may be tempting, there are a few important factors to consider before making any changes.

Firstly, if your company is on an upward growth trajectory, any step down in reporting requirements may be short-lived. Changing your processes now, only to have to revert in a few years, could prove more trouble than it’s worth.

Secondly, there are concerns about the micro-entities regime, with some believing that the accounts produced under this category are so barebones that they’re practically meaningless for assessing a company’s performance and prospects.

It’s also important to keep in mind that other changes are afoot in the world of corporate reporting. The Economic Crime and Corporate Transparency Act will soon require small and micro-entities to file their profit and loss accounts, and the Financial Reporting Council has published amendments to FRS 102 that will come into effect in 2026.

It is also possible that increasing thresholds may have knock on impacts further down the line for other reporting requirements which are loosely but not directly linked to Companies Act size thresholds such as Modern Slavery Act reporting and Gender Pay Gap reporting.

While increasing the size thresholds is a step in the right direction for keeping the UK framework competitive, there are still underlying issues that need to be addressed. Definitions of turnover, total assets, and employees could all benefit from a review, and there are bigger questions around the emphasis placed on ownership structure and the criteria used to determine company size.

With a General Election now confirmed for July, the window for the government to enact significant legislative changes to the UK reporting framework is narrow. Despite this constraint, it remains crucial to reinforce the UK’s standing as a global leader in high-quality corporate reporting. While raising the company size thresholds marks a significant initial step, additional efforts are essential. These could include enhancing transparency requirements, promoting sustainable reporting practices, and ensuring robust regulatory oversight. By prioritizing these areas, the UK can continue to set the standard for excellence in corporate governance and reporting.