Company Account Thresholds to Rise by 50% from April 2025

The government has announced considerable increases in the turnover and balance sheet value thresholds for the company account to reduce the administrative burden on the companies. The changes, applying for periods commencing on or after 6 April 2025, are the first rise in the limits since 2013. This means that thousands of companies in the UK are chiefly relieved from the burden.

Legislative Amendments to Reduce Reporting Burdens

The new Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 have been enacted; they provide a 50% increase in the company account thresholds applicable concerning size categories of companies for both financial reporting and audit requirements introduced under the Companies Act 2006. Amendments also impact limited liability partnerships classified as micro-entities, small, medium-sized, or large companies.

The bill is supposed to address the issues identified by interested parties in the consultation carried out by the Department for Business and Trade. According to that department, out-of-date company account thresholds, combined with inflation, plus cumulative EU directives were placing unnecessary reporting burdens on business.

“The incremental addition of new requirements over time has led to overlapping reporting in several areas, with little consideration of whether historical reporting obligations remain of value,” the DBT stated.

Key Company Account Threshold Changes

The revised company account thresholds, which dictate the classification of companies and their reporting requirements, are as follows:

• Micro-entities - Turnover up to £1 million; balance sheet total up to £500,000; monthly average number of employees not more than 10.
• Small Companies - Turnover up to £15 million; balance sheet total up to £7.5 million; monthly average number of employees not more than 50.
• Medium-Sized Companies - Turnover up to £54 million; balance sheet total up to £27 million; monthly average number of employees not more than 250.
• Large Companies - Companies exceeding at least two of the medium-sized criteria.

The gross and net turnover and balance sheet thresholds have been revised similarly for company groups.

Impacts and Benefits

The government estimates that the revised company account thresholds will:

• Save businesses approximately £240.2 million annually in compliance costs
• Reclassify around 113,000 businesses as micro-entities, 14,000 as small, and 6,000 as medium-sized

These changes would reduce the number of reports that have to be prepared by many businesses, enabling them to focus on their core business. Simplified reporting and audit procedures would be especially welcomed by micro-entities and small companies.

Additionally, the updated company account rules will:

• Remove unnecessary reporting requirements in directors' reports, which currently duplicate modern corporate reporting requirements, and
• Shift off-payroll working rule responsibilities for approximately 10,000 companies to individual intermediaries, a move expected to cost the Treasury around £20 million annually in lost tax revenue starting in 2026/27

Consultation and Rationale

The DBT's consultation revealed wide-ranging support from respondents: 59% agreed the current company account thresholds were no longer suitable. Representatives also argued for removing duplicate reporting requirements in directors' reports; this has been addressed by the government in the new law.

“Corporate reporting is most effective when it produces decision-useful information for shareholders,” the DBT stated. The changes aim to ensure that reporting requirements are focused, comparable, and concise.

Transition Provisions

To make life easier, businesses can apply the revised company account thresholds retrospectively to previous financial years. In other words, businesses can immediately take advantage of the changes when the legislation commences.

Conclusion

It is recommended that businesses familiarise themselves with the updated company account thresholds and consider how the changes will affect their reporting obligation. The DBT is considering publishing further guidance with the aim of a seamless transition to the new regime.

These revised thresholds, combined with optimised reporting requirements, are surely clear indicators of the commitment by the government toward reducing administrative burdens and going on to further facilitate an even better environment for doing business. Indeed, setting an effective date in April 2025 will provide adequate time for businesses to accommodate these transformational changes.