Proposed changes to company size limits, audit thresholds and other reporting requirements

In March 2024, the UK government set out intended regulatory changes to the non-financial reporting framework, focusing on reducing regulation on companies with the objective of ensuring reporting requirements remain proportionate to size.

The government will propose legislation to lift the monetary thresholds that determine company size by 50%.

Proposed company size reclassification

The potential impact of these changes will mean that:

• 5,000 large companies will be reclassified as medium-sized
• 13,000 medium-sized companies will be reclassified as small companies (meaning they will be exempt from statutory audit requirements, and can file simpler accounts)
• 113,000 small companies will be reclassified as micro-entities.

Small and micro entities will be exempt from statutory audit requirements and will be able to file simpler accounts, including the use of FRS 105 (micro) and FRS 102 1A (small).

However, companies are also reminded that other legislation is likely to come into force later in 2024 requiring all entities to file a profit and loss account at Companies House (Economic Crime and Corporate Transparency Act), alongside numerous other changes to Companies House filing, including the verification of Directors.

Entities that will no longer be classified as large will be able to take advantage of large company disclosure reporting exemptions. This includes an exemption from carbon reporting.

Changes to the Directors’ Report, Directors’ Remuneration Report and Policy

It’s also intended to remove several low-value, obsolete or overlapping requirements from the Directors' Report, Directors’ Remuneration Report and Policy; simplifying digital annual reports and correcting technical issues in the audit regulatory framework that have come about as a result of the assimilation of EU law into UK law.

What will be the benefits?

As well as delivering a proposed deregulation saving of around £150 million per year to UK companies and a further £145 million for small and medium enterprises. It will also reduce the administrative burden involved in preparing annual reports and accounts.

What’s next?

This legislation will need to be enacted through parliament, with the law-making process starting in early October 2024.

Are there any other proposed changes coming down the line?

Later in 2024, the government propose to consult on the following:

• Amending the definition of a medium-sized company for reporting purposes, so the threshold on the maximum number of employees will be increased from 250 to 500
• Exempting medium-sized companies from having to produce a strategic report
• Exempting smaller public interest entities (PIEs) from audit tendering and rotation requirements

Proposed size and audit thresholds:

Alongside the above, there are other wide-ranging proposed changes, including suggested alterations to disclosures relating to disabled persons in Directors’ Reports, and environmental disclosures. You can read the full impact assessment here.

These proposals have significant implications for business, and we will be monitoring this area closely. We will notify you of any further developments once known, but in the meantime, if you have any questions or concerns you should not hesitate to contact your usual Duncan & Toplis representative, or alternatively contact our audit and assurance team.

You can read the government’s statement here.