Small businesses in the UK are being reclassified from April 2025 as the government introduces new laws on company size thresholds.
That means financial reporting, auditing and, in some cases, taxation may change for some SMEs. But don’t worry! The new classifications appears to help reduce financial reporting complexity for some businesses.
Many medium-sized companies will now be classed as small. And many small businesses may be classed as micro-entities in future.
The changes will be implemented from 6 April 2025. And it’s worth finding out if your company’s classification will change. The changes will affect both companies and LLPs.
What are the company size thresholds changes?
The changes were announced by the previous Conservative government under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024. The current government backed these plans and will introduce them from April this year. They come into force in the financial years that begin or are after 6 April 2025.
Once implemented, the regulations are expected to see around 14,000 companies that were classed as ‘medium-sized’ fall into the small company threshold. Around 113,000 that are currently classed as a small company will become ‘micro-entities’.
It is also estimated that around 6,000 large companies will move to medium-sized.
What does it mean for my business?
If your company is one of the 14,000 that will see its classification fall into the small business regime, you will be able to benefit from audit exemptions. That means you will prepare simpler company accounts. You will prepare FRS 102 1A rather than the full FRS 102 accounts.
A company that is reclassified as a micro-entity will only require preparation of simpler accounts under FRS 105. This eases the overall reporting process.
But be aware, that there may be circumstances where audits may be required for a small company. For example, where the company is part of a group or audits are required by the company’s shareholders or bank.
What are the new company size thresholds?
The table below outlines the changes. Two out of three thresholds must be met for two consecutive reporting periods to determine the company’s size.
| Threshold | Micro | Small | Medium | Large |
| Turnover | Up to £1m | Up to £15m | Up to £54m | Over £54m |
| Gross assets | Up to £500k | Up to £7.5m | Up to £27m | Over £27m |
| Employee numbers | 10 (no change) | 50 (no change) | 250 (no change) | Over 250 |
Key reporting dates
The changes apply for accounting periods on or after 6 April 2025. These are the key reporting dates.
For companies with a year end on 31 March 2025:
- The first set of accounts under the new threshold will be from 1 April 2026 – 31 March 2027.
- The first set of accounts under 2024 periodic review are from 1 April 2026 – 31 March 2027.
That means the accounts on 31 March 2027 are the first set of accounts that will apply to both changes.
For company accounts with a year end on 30 April 2025:
- Your first set of accounts under the new thresholds are 1 May 2025 – 30 April 2026.
- The first set of accounts under 2024 periodic review are from 1 May 2026 – 30 April 2027.
That means the new thresholds apply a year before the periodic review changes are applied. But you can consider early adoption if you wish to apply both changes to the same period.
For companies with a year end on 31 December 2025:
- Your first set of accounts under the new threshold is 1 January 2026 – 31 December 2026.
- And the first set of accounts under 2024 periodic review is 1 January 2026 – 31 December 2026.
Other changes
As well as changing the accounting rules, the new law also reduces the amount of information that is needed in Directors Reports. This includes:
- Small companies – The reporting of the employment of disabled persons has been removed.
- Large and medium companies – The requirement to report information about financial instruments, disclosure on the employment of disabled persons and their engagement with employees, suppliers, customers and others as well as miscellaneous provisions has been removed.
We can help
If you are unsure whether your company will change its classification under the new company size thresholds, then we can help. You can contact one of our experienced team who are always happy to help.
