Over 100,000 businesses will see their company size change in April, and with that comes different reporting requirements for many.
Changes to company size thresholds are on their way, reclassifying many large, medium and small businesses as smaller entities, but consideration should be given by companies to not give up on some of the additional disclosures as a result, for example disclosures relating to environmental, social or governance considerations.
From April 2025, close to 100,000 businesses across the United Kingdom will be affected by changes that will see a company’s size determined by new limits of turnover and total assets. This will, in theory, mean there will be more micro, small and medium businesses as a result, with fewer companies officially recognised as large.
As larger companies have greater reporting requirements than others, this reclassification will also mean more companies are exempt from disclosing additional matters.
However, I would encourage companies to consider continuing to make additional disclosures, even if they’re no longer required to by law, to better inform their stakeholders and users of their statutory accounts.
Different types of disclosures required can include ones relating to carbon emissions, employee engagement and other environmental, social and governance matters.
From 6 April, entities that find themselves ‘small’ or ‘micro’ or ‘medium’ under the new thresholds will be left to their own discretion as to whether they want to make such disclosures, leaving the choice as to whether to communicate those matters to key stakeholders a choice of the business itself.
The UK government predicts that around 113,000 companies and LLPs will move from small to micro business category (with a turnover of under £1 million), 14,000 medium companies will be recognised as small (£1m-£15m), and 6,000 large firms will be considered medium (£15m-£36m), as a result of the changes.
Medium companies moving to small entities will find themselves exempt from producing strategic reports, while those moving to micro business size will be exempt from producing a Directors’ Report.
Crucially, though, employee counts will not change when determining company size in April, with current rates remaining as they are. This means that micro businesses are up to 10 staff members, while it is up to 50 for small businesses, and up to 250 for medium sized companies.
I can certainly see why businesses would stop making the additional disclosures if they have the choice: Compliance is one of many outgoings that don’t immediately contribute to profits.
Fundamentally, making additional disclosures will better inform the users of your accounts as to your commitment to socially responsible activities. Such reporting as a smaller business can go a long way towards helping you win tenders against competitors, as it displays a commitment to high standards and an awareness of the impact that your business has on society and the environment. Not only does this enhance your social optics and perceived sustainability, larger companies (which will still be subject to existing disclosure obligations) may be more inclined to utilise your services or products in their supply chain because this can support their own credentials.
Ultimately, this is a change you have little control over, but I would suggest that you consider continuing, or introducing disclosures informing stakeholders about your approaches to tackle environmental, social or governance matters.
Duncan & Toplis is available to offer expert advice and support to business owners with any concerns about the upcoming changes, including guidance on new reporting requirements, how to simplify compliance and the role of external auditing.
