Government Raises Reporting Thresholds
Government Raises Reporting Thresholds to Ease Burden on Companies
Government Raises Reporting Thresholds to Ease Burden on Companies
In a significant move aimed at reducing the administrative burden on businesses, the UK government has introduced higher turnover and balance sheet thresholds for annual accounts under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024. Effective from 6 April 2025, the revised thresholds reflect the first update since 2013 and align financial reporting requirements with modern economic realities, including inflation and evolving business environments.
What Are the Changes?
The updated thresholds increase the turnover and balance sheet criteria used to classify businesses as micro, small, medium-sized, or large under the Companies Act 2006. These adjustments will apply to both companies and limited liability partnerships (LLPs), bringing approximately 113,000 companies and LLPs into the micro-entity category, 14,000 into the small category, and 6,000 into the medium-sized category.
New thresholds are as follows:
Micro Entities and LLPs:
Turnover: Not more than £1 million
Balance Sheet Total: Not more than £500,000
Small Companies and LLPs:
Turnover: Not more than £15 million
Balance Sheet Total: Not more than £7.5 million
Medium-Sized Companies and LLPs:
Turnover: Not more than £54 million
Balance Sheet Total: Not more than £27 million
Large Companies and LLPs:
Any company exceeding at least two of the medium-sized criteria.
Groups are evaluated on a net or gross basis for both turnover and balance sheet totals, with thresholds increasing accordingly.
Why Are the Changes Significant?
For the first time in over a decade, these updates address inflationary pressures and stakeholder feedback about the disproportionately high burden of compliance on smaller entities. The adjustments are projected to save UK businesses £240.2 million annually by simplifying financial and non-financial reporting requirements.
In practical terms:
Companies reclassified as micro-entities will benefit from minimal reporting obligations, such as simplified balance sheet and profit and loss disclosures.
Small companies will experience reduced audit requirements and lighter compliance.
Medium-sized businesses will see fewer obligations for detailed reporting, particularly in the directors’ report.
Streamlining the Directors’ Report
Another major change involves removing redundant reporting requirements in the directors’ report to eliminate overlap and focus on decision-useful information for shareholders. This streamlining effort reflects the government’s stance that effective corporate reporting should be focused, comparable, and concise.
Transitional Provisions
To facilitate a seamless transition, companies and LLPs can apply the updated thresholds retrospectively when reporting on previous financial years. This ensures that businesses can benefit from reduced compliance requirements immediately after the regulations come into force.
Wider Implications
The changes also have implications beyond annual accounts. Around 10,000 companies will no longer meet the minimum thresholds for off-payroll working rules, shifting responsibility for compliance back to the contractor’s intermediary. While this is expected to benefit businesses, it could cost the Treasury an estimated £20 million annually in lost taxes starting from 2026/27.
Key Takeaways
The government’s move to update thresholds signals a commitment to modernizing the regulatory framework and supporting businesses by reducing unnecessary compliance costs. By addressing outdated criteria and streamlining reporting obligations, the legislation aims to create a more efficient, business-friendly environment.
With the new thresholds set to take effect from 6 April 2025, companies should start reviewing their financial reporting processes now to ensure a smooth transition and compliance with the updated regulations.
