Audit thresholds change
In a move to ease the reporting burden on UK companies, the UK Government have announced a series of deregulatory changes. Applicable for accounting periods commencing on or after 6 April 2025, the changes will see existing company size thresholds rise by 50%.
The move is estimated to benefit 132,000 SMEs, with 5,000 large companies (63%*) being reclassified as medium sized and 14,000 medium sized companies (38%) reclassified as small, enabling those small to potentially benefit from audit exemption.
Although there was debate around increasing the employee number threshold for medium sized entities, the government have now confirmed this will remain unchanged at 250 employees.
The new company size thresholds are as below:
Historically, a ‘two year rule’ applied when determining a company’s size, meaning a company will only fail to be small if it breaches the thresholds for two consecutive years. New legislation in The Companies (Accounts and Reports)(Amendment and Transitional Provision) Regulations 2024 however, includes transitional provisions allowing companies to treat the size amendments as having been applied in the previous financial year when determining their size.
Generally, a company is exempt from audit if it meets two of the three criteria of a small company. It is important to remember however that size alone does not determine the need for an audit. Consideration must be given to group reporting requirements, lender covenants and constitutional requirements for example. Advice should be taken prior to deciding whether an audit is still required.
(*The number of private sector businesses in the UK at the start of 2023 was: 5.51m small companies, 36,900 medium companies, and 8,000 large companies. Source: Gov.uk official statistics 5 October 2023).