Financial reporting changes
On 6 April 2024, significant changes affecting financial reporting came into effect, meaning the size of many businesses has been reclassified.
For the first time in 12 years the thresholds determining whether a company is micro, small or medium sized changed, affecting an estimated 6,000 large businesses, 14,000 medium sized businesses and 113,000 small businesses. These would all downgrade a category, becoming medium, small and micro entities respectively.
According to the government, the amendments are designed to reduce the reporting burden on companies 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 account for the impact of inflation since they were previously set in 2013, and apply to accounting periods that start on or after 6 April 2025. Here are the new thresholds:
Micro-entity:
Before 6 April 2025: turnover of £632,000 or less and balance sheet of up to £316,000
From 6 April 2025: turnover of £1 million or less and balance sheet of up to £500,000
Small company:
Before 6 April 2025: turnover of £10.2 million or less and balance sheet of up to £5.1 million
From 6 April 2025: turnover of £15 million or less and balance sheet of up to £7.5 million
Medium-sized company:
Before 6 April 2025: turnover of £36 million or less and balance sheet of up to £18 million
From 6 April 2025: turnover of £54 million or less and balance sheet of up to £27 million
For businesses dropping from the medium to the small entities category, the impact is significant. They are now exempt from statutory audits of their annual accounts, and are no longer required to produce a Strategic Report. They can also take advantage of simpler accounting requirements. Companies that have moved into the micro category, meanwhile, are now exempt from producing a Directors’ Report.
Directors’ Report changes
Regulatory burdens are further reduced on large and medium sized businesses by removing the need to include the following in their Directors’ Report:
- the use of financial instruments
- important events that have occurred since the end of the financial year
- likely future developments in the business of the company
- research and development activities
- the existence of branches outside the UK
- the employment, training and advancement of disabled persons (this requirement is also removed from directors’ report requirements for small entities)
- engagement with employees, suppliers, customers and others
Getting to grips with a new status
If your business has been impacted by the threshold changes and you need clarification around your new reporting requirements, get in touch with a reputable accountant today. Offering advice on regulations, support with bookkeeping, and clarity around reporting, an accountant can ensure you meet the new financial year on the right foot.
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