Financial reporting: major changes for business sizes take effect

Newsletter issue – May 2025

Significant changes affecting financial reporting have kicked in, meaning many businesses may be re-classified in terms of their sizes.

The thresholds to determine whether a company is counted as 'micro, small or medium' changed on 6 April for the first time in 12 years. The Government announced the changed in December 2024.

The figures on the potential impact of the changes released by the Government, indicated around 6,000 businesses would go from 'large' to 'medium' under the changes. Around 113,000 businesses and LLPs will shift from small to micro and about 14,000 would drop from medium to small.

The published legislation memorandum states: 'The legislation reduces reporting burdens on companies. It does this by:

'Increasing by approximately 50% the turnover and balance sheet criteria that help determine whether a company is a micro-entity or small, or medium-sized, or large for the purpose of reporting and audit requirements under the Companies Act 2006, which will see many companies benefit from lighter touch financial and non-financial reporting requirements.'

The new thresholds officially apply to accounting periods beginning on or after 6 April 2025. So, for example, if your financial year begins on 1 July and ends on 30 June, the first period you'll be required to apply the new thresholds will be for the year ending 30 June 2026. So, for your 30 June 2025 accounts, the old thresholds still apply. Although there's also a transitional provision that could be applied. Here's what the thresholds look like for before and since April 2025:

Micro-entity:

Before 6 April 2025: turnover of £632,000 or less

From 6 April 2025: turnover of £1 million or less

Small company:

Before 6 April 2025: turnover of £10.2 million or less

From 6 April 2025: turnover of £15 million or less

Medium-sized company:

Before 6 April 2025: turnover of £36 million or less

From 6 April 2025: turnover of £54 million or less

Large company:

Before 6 April 2025: turnover over £36 million

From 6 April 2025: turnover over £54 million

For some businesses, the change might mean they drop to the lower category, which may mean they are no longer required to undergo a statutory audit. Ultimately the reforms are meant to help reduce the compliance burden on smaller businesses.