Posted by ashleyphillips - July 24, 2024 12:18 pm Changes to company size thresholds – decisions to be made?

The UK Government announced in March that it plans to increase the monetary thresholds for determining company sizes by around 50%. It is intended for legislation to be implemented over the summer of 2024 which will potentially become effective for accounting periods commencing on or after 1 October 2024. The number of employee thresholds are expected to remain as they currently are, other than a potential consultation on raising the limit for the number of employees relating to the medium sized regime.

Whilst we now have a new Government, there was no major opposition to the initial plans and there has been no suggestion that the new Government will abandon the former Government’s intentions.

If these changes do come into force then the suggested company size thresholds are as follows:

Companies must meet 2 out of the 3 criteria in both the current and preceding financial year (or first financial year only if it is the first financial year) in order to qualify for a specific size regime.*

What are the potential impacts?

• Audit thresholds are linked to the small company limits above. Accordingly more entities could become audit exempt, subject to other factors such as for groups and charitable organisations. However this is also subject to impending updates to FRS 102, where significant changes to accounting for leases could uplift the values for companies’ total gross assets.

• Less disclosure for companies falling down into a lower size regime, although the new Economic Crime (Transparency and Enforcement) Act places additional reporting requirements on all entities, such as the requirement for small and micro entities to file their Profit and Loss Accounts with Companies House.

• More companies may choose to adopt the micro-company regime and prepare accounts under FRS 105 instead of FRS 102. Currently many companies prepare accounts under the small companies’ regime rather than the micro-entity one because of the impact on potential bank borrowing for the company or its shareholders when attempting to get a mortgage. However the changes to the thresholds, as well as changes to lease accounting within FRS 102, may cause more entities to adopt FRS 105 as an alternative.

As you can see there are many factors to consider, but one thing is clear – choosing the right accounting regime is becoming more important than ever.

* Note that other qualitative aspects may impact on this, such as for charitable entities.

Should you require any further advice then please contact your local MFW office where our teams will be pleased to help.