You may remember our article from July 2024 – Changes to the UK company size thresholds – what you need to know.
In this article we outlined the proposed changes to the thresholds that were being reviewed as part of the governments aim to modernise the UK corporate reporting system and ease the administrative burden on small and medium enterprises.
At that time, we were expecting the proposals to be finalised in the summer and effective from 1 October 2024 however, as with much legislation, this often takes longer than anticipated!
The government has now finalised and published legislation to increase the company size thresholds effective from 6 April 2025.
Below is a table of the current thresholds against the new thresholds agreed. This will impact accounting periods commencing on or after the 6 April 2025 (most common will be 30 April 2026 year ends).
The Two Year Rule
In its first financial year, if a company’s size is determined by the thresholds it meets within that period. Subsequently, the company will remain this size until it has failed to meet the criteria for two consecutive years (the two year rule). Put simply, the company can exceed, or fall below the threshold in one year without changing the company size but should it exceed or fall below for a second consecutive year, the company size would change.
Transitional provisions
The newly introduced legislation includes a transitional provision to simplify the shift to the updated thresholds. For financial years beginning on or after 6 April 2025, companies can assume the new thresholds were already in effect during the previous year. This means that businesses can immediately benefit from the raised size limits, without waiting to meet the criteria under the two year rules based on the old threshold.
Impact on UK Audit Thresholds
The audit thresholds have been updated to follow the new company size thresholds, therefore if your Company’s turnover is between £10.2m and £15m; and gross assets between £5.1m and £7.5m, you are likely to be affected by the changes.
If you fall within these brackets, please get in touch and to discuss how the changes apply to you.