Proposed changes to company size thresholds set to affect over 100,000 SMEs

To streamline reporting requirements for small businesses, the UK government announced plans to raise the monetary thresholds used to define company size.

Unveiled in on 18 March 2024 by Prime Minister, Rishi Sunak, the details were set out by Small Business Minister, Kevin Hollinrake, in a written statement to Parliament. The proposals aim to create a ‘smarter, simpler, and better’ non-financial reporting framework by reducing regulations for small businesses and ensuring reporting burdens are proportionate to their size.

The proposed changes set out in the statement include:

• 113,000 small firms would be reclassified as micro-sized businesses, allowing them to submit even simpler accounts.
• 13,000 medium-sized companies would become small businesses, exempting them from statutory audits and allowing them to use simpler accounting procedures; and
• 5,000 large companies would become medium-sized, meaning they would no longer be required to undergo statutory audits and could file fewer complex accounts.

The proposals are in full in the table below. To be classified for these thresholds, businesses must meet two out of three of the requirements:

2 of 3 out of:	Micro		Small		Medium		Large
	Old	New	Old	New	Old	New	Old	New
Annual turnover	nmt* £632k	nmt £1m	nmt £10.2m	nmt £15m	nmt £36m	nmt £54m	£36m+	£54m+
Balance sheet total	nmt £316k	nmt £500k	nmt £5.1m	nmt £7.5m	nmt £18m	nmt £27m	£18m+	£27m+
Average number of employees	nmt 10		nmt 50		nmt 250		251+

The government intends to introduce the necessary legislation in Summer 2024 to implement these changes. The new company size classifications are expected to be applied to financial years beginning on or after 1 October 2024.

Streamlining annual reports and audits

In addition to company size classification changes, Kevin Hollinrake has outlined further plans to simplify reporting requirements. The government intends to:

• Eliminate unnecessary or outdated elements from the directors' report, remuneration report, and policy;
• Make it easier for companies to submit digital annual reports; and
• Fix problems identified in the audit regulatory framework following the UK's adoption of EU law.

Future consultations

The government also plans to open consultations on additional measures later in 2024, including:

• Increase the employee limit used to define a medium-sized company from 250 to 500 for reporting purposes;
• Potentially exempt medium-sized companies from producing a strategic report; and
• Consider exempting smaller public interest entities from audit tendering and rotation requirements