From April, new company size thresholds will come into force, redefining how companies are classified as micro, small, or medium-sized.
These updates will directly affect whether your business needs an audit, the type of accounts you prepare, and the level of detail required in your financial reports. If you’re unsure how the changes apply to your business, now is the time to prepare before seeking out an accounting specialist like Ward Goodman or another firm.
What Are Company Size Thresholds in the UK?
Company size thresholds determine how a company is categorised, as micro, small, medium, or large.
These categories impact your reporting responsibilities, from whether your company needs an audit, to the kind of disclosures you’re expected to make.
Companies are assessed on three criteria:
- Annual turnover
- Balance sheet total (total assets)
- Average number of employees
To qualify as a particular size, a company must meet two out of the three thresholds.
If you have a growing business, there’s also a two-year rule, meaning the company must meet the criteria for two consecutive years before it officially moves to a new category.
For groups, there’s the added complexity of net vs gross thresholds:
- Net thresholds consider figures after consolidation adjustments
- Gross thresholds (typically 20% higher) are used before adjustments and can offer more flexibility
What’s Changing in April 2025 and Why?
On 6th April 2025, new thresholds introduced by The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (GOV.UK) will come into effect.
These reflect inflationary changes since the last adjustment in 2013 and aim to ease the reporting burden on UK businesses.
Here’s what’s changing:
| Company Size | Turnover (net) | Balance Sheet Total (net) | Employees |
| Micro | <£1,000,000 | <£500,000 | <10 |
| Small | <£15,000,000 | <£7,500,000 | <50 |
| Medium | <£54,000,000 | <£27,000,000 | <250 |
For all micro, small and medium sized companies, they must fall below 2 out of 3 of the thresholds in order to qualify. The ‘two-year rule’ means that a company must fall into a new category for two consecutive years in order to qualify.
These net figures are used to assess individual companies. Groups can apply the gross thresholds, which are 120% of the net thresholds.
The move is expected to reduce compliance requirements for:
- Around 113,000 small companies, who will now qualify as micro
- Around 14,000 medium-sized companies, who will now qualify as small
What’s the Impact on Medium-Sized Company Thresholds?
For many businesses, the most immediate impact will be the shift from medium to small status.
This change can bring tangible benefits, including:
- Audit exemptions for companies that no longer meet medium-size criteria
- Simplified accounts, with fewer disclosure requirements
- Lower compliance costs, especially for owner-managed businesses
- Streamlined reporting, freeing up internal resources
However, there are also strategic considerations.
Some medium-sized businesses may value the rigour and transparency of audits, especially if they’re seeking investment or finance. The decision to take advantage of the changes should be weighed carefully with professional advice.
How Do Transitional Provisions Work?
The new thresholds apply to financial years beginning on or after 6 April 2025.
To benefit from the change sooner, businesses may consider adjusting their financial year-end (if they haven’t done so in the past five years).
For example:
- A business with a 31 March year-end could move to 30 April 2025
- This brings the next financial year (ending 30 April 2026) under the new rules
Crucially, when applying the two-year rule, companies must assess prior periods using the new thresholds, even if those years pre-date the change.
This could involve reassessing historical data to determine whether your company’s size classification shifts in 2025/26.
Should You Reassess Your Year-End or Group Structure?
Yes, especially if you’re on the cusp of a size boundary.
Some practical steps to consider:
- Evaluate your current financial year-end: Would a small shift bring you under the new rules sooner?
- Review your group structure: Could the gross thresholds apply to give you more flexibility?
- Run forecasting scenarios: Use your last two years of data to assess whether you’ll qualify for a new category.
If you’re unsure, this is a great time to receive business services from an accountant or tax advisor. Planning ahead could mean lighter compliance requirements, reduced costs, and fewer admin headaches down the line.
What Businesses Should Do Next
The increase in UK company size thresholds represents a major shift in financial reporting. And while the goal is simplification, the transition will require forward planning.
Here’s what we recommend:
- Review your current size classification using the new thresholds
- Model your last two financial years to determine if you’ll qualify for a change
- Assess the impact on audit requirements, directors’ reports, and compliance
- Consider year-end changes to bring your business under the new rules earlier
- Speak to your accountant, early planning can make all the difference
Ward Goodman helps businesses of all sizes navigate complex changes with clarity and confidence. If you’re unsure how the 2025 company size threshold changes affect your business, get in touch with our expert team today.
FAQs
What are company size thresholds in the UK?
Company size thresholds classify businesses as micro, small, medium or large based on turnover, balance sheet total, and number of employees. These impact reporting obligations.
When do the new company size thresholds come into effect?
The updated thresholds take effect for financial years starting on or after 6 April 2025, under the Companies (Accounts and Reports) Regulations 2024.
How do the new thresholds affect medium-sized businesses?
Many medium-sized companies may now qualify as small, potentially gaining audit exemptions and reduced reporting requirements, lowering compliance burdens.
What is the two-year rule for company size changes?
To change size classification, a company must meet the relevant thresholds for two consecutive years. Historical data must be reassessed under the new 2025 limits.
Can I change my financial year to benefit sooner?
Yes, businesses can adjust their year-end (if eligible) to fall within the new rules earlier. For example, moving from 31 March to 30 April 2025 may qualify.
