Audit and assurance update: Increases to company size thresholds

With the United Kingdom no longer tied to the maximum EU thresholds that determine whether a company is a micro-entity, small, medium or large-sized company, the Prime Minister announced on 18 March 2024 the Government’s proposals to increase these thresholds.

The increases are targeted at cutting complexity and reporting burdens. In addition, with the last threshold changes having taken place in 2016, they reflect price changes over that time.

The proposed thresholds are anticipated to be effective for accounting periods commencing on or after 1 October 2024, and are summarised below together with the current thresholds.

 

Current

Proposed Current Proposed Current

Proposed

Threshold measure

Micro-

entity

Micro-

entity

Small-sized

company

Small-sized

group

Small-sized

company

Small-sized

group (see note below)

Medium-sized company

Medium-sized

group

Medium-sized company

Medium-sized

group (see note below)

Turnover not exceeding £632,000 £1m £10.2 m £10.2m net, or £12.2m gross £15m £15m net, or £17.94m gross £36m £36 m net, or £43.2m gross £54 m £54m net, or £64.8m gross
Total assets (fixed plus current assets) not exceeding £316,000 £500,000 £5.1m £5.1m net, or £6.1m gross £7.5m £7.5m net, or £8.97m gross £18m £18m net, or £21.6m gross £27 m £27m net, or £32.4m gross
Average number of employees not exceeding 10 10 50 50 50 50 250 250 250 250

In order to satisfy the criteria to be a certain size, two out of the three above thresholds must be met. Separately, a company will not qualify as a micro-entity, small or medium-sized company if it is ineligible or is part of an ineligible group, which includes a traded company or an insurance market activity.

The Government’s announcement did not contain details of the proposed small and medium-sized group thresholds. Therefore, for the purposes of the above, it has been assumed that the proposed gross amounts have the same uplift as the current net to gross basis. To determine the size of a parent company either the net basis or gross basis can be used in determining the turnover or total assets thresholds. The gross basis is before elimination of any consolidation adjustments (including, but not limited to, intra group balances and transactions), whilst the net basis is after elimination of consolidation adjustments.

It could be expected that these proposals would be enacted alongside the provisions for the removal the option to file ‘filleted’ accounts at Companies House for small-sized and micro-entities, as contained in The Economic Crime and Corporate Transparency Act which was passed into law in October 2023.

The Government also plans to consult later in 2024 year on amending the definition of a medium-sized company for reporting purposes and possibly exempting medium-sized companies from being required to prepare a strategic report, which runs alongside their annual financial statements. The current threshold on the number of employees for a medium-sized company is 250 and this could increase to 500.

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