A 50% increase was expected in a bid to cut complexity and burden from reporting requirements.

Following the change of government over the summer these plans have remained on the table, but the timeframes and details then changed. However, on 12 December The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 was published as new legislation, and finally clarifies both the position and timing.

New size thresholds

Micro

Small

Medium

The changes are expected to result in:

• 6,000 large companies being reclassified as medium-sized to access more proportionate reporting;
  
• 14,000 medium-sized companies falling into the small companies’ regime enabling them to benefit from potential audit exemption and filing filleted accounts (until this provision is removed); and
  
• 113,000 small companies falling into the micro-entities’ regime to allow them to prepare FRS 105 micro accounts

The increased thresholds will also apply to LLPs.

Further impacts

It has also been confirmed that the existing rule will be retained under which two out of three of these limits must be exceeded for two consecutive years, and that the alignment of the audit exemption thresholds with small company financial reporting thresholds for standalone companies will be retained.

Other changes

Further changes will also be brought into effect to remove certain obsolete and over-lapping non-financial disclosures from Directors' Reports.

Large and medium-sized entities will no longer be required to include in their Director's Reports information on;

• Financial instruments;
• Important events that have occurred since the end of the financial year;
• Likely future developments;
• Research and development;
• Branches outside the UK;
• The employment of disabled people (this is also being removed for small entities);
• Engagement with employees; and
• Engagement with customers and suppliers.

Effective date

The changes will come into effect for accounting periods commencing on or after 6 April 2025, thus in most cases impacting 30 April 2026 year ends onwards.

What does this mean for me?

Aside from the potential reduction in reporting referenced above, the main consideration is if these changes might impact whether your business(es) needs an audit or not moving forward.

For those businesses who are already exceeding the proposed new limits, there is little or no direct opportunity for planning around this, and wider planning should not be driven by the objective to fall out of the audit regime alone.

Where planning may be possible is for those businesses that are exceeding the existing limits but would fall below the new limits and might expect to do so moving forward, at least over the next two to three years.

In that scenario, it may be possible to amend (shorten or extend) accounting period dates, such that one ‘final’ period can be prepared and audited, after which the company falls out of the audit regime.

It should be noted that a company cannot extend its accounting period date beyond an 18-month period and therefore this will have some limitations in its application.

Transitional rules do allow businesses to look back at the previous period through the lens of the new limits when it comes to determining the size of the business and applying the "two year rule".

Businesses should also be mindful of “flip-flopping” in and out of the audit regime and the potential impact this has on the audit work required and/or opinion reached. It is always important to ensure that there is a full understanding of what is required in order to ensure that subsequent periods are not adversely affected, and the unintended consequences that can result, including, by way of example, a decline in credit rating amongst other things.

How can Rickard Luckin help?

The team at Rickard Luckin will be keeping up to date with the position over the course of the coming months as it develops and as legislation is tabled. If you think your business may be affected by the changes and would like to talk to somebody about what practical impact this may have on you, or any planning that might be possible, please get in touch .