New thresholds for company size classifications have taken effect for financial years starting on or after 6 April 2025, meaning more small and medium-sized businesses can benefit from simpler reporting rules.
See the changes on Legislation.gov.uk here.
The changes
The government has raised the financial thresholds that define whether a company is considered small or medium-sized. This move is aimed at easing the regulatory burden and aligning thresholds with inflation, which had remained static since 2013.
In basic terms, thresholds have increased by 50%. Here are the updates:
| Company size | Previous turnover | New turnover | Previous balance sheet total | New balance sheet total |
|---|---|---|---|---|
| Small | £10.2 million | £15 million | £5.1 million | £7.5 million |
| Medium | £36 million | £54 million | £18 million | £27 million |
Employee thresholds remain unchanged at <50 for small and <250 for medium classifications.
Whereas typically the ‘two-year consecutive rule’ would apply in determining a company’s size, a transitional ‘look back’ provision has been included in the legislation. meaning that a company determining its size in the first period commencing after 6 April, will apply the new thresholds as if they applied to the prior year too. An example of this is shown below:
| Financial year ending 30 April | Turnover | Balance sheet total | Size using 'two-year' rule | Size using 'look-back' provision |
|---|---|---|---|---|
| 2024 | £11.3m | £6.1m | Medium | Medium |
| 2025 | £12.7m | £6.8m | Medium | Small (applying new thresholds retrospectively) |
| 2026 | £13.4m | £7.2m | Medium (as the first of two qualifying years as small) | Small (under new thresholds) |
Why the change?
These updates are designed to reduce red tape for growing businesses and support SMEs with a more proportionate approach to regulation. By increasing the thresholds, more companies will qualify as small or medium-sized, meaning:
- Simpler financial reporting
- Fewer mandatory disclosures
- Exemption from statutory audit
- Where the requirement for audit is based solely on the company’s size
The value of voluntary audit
Companies falling below the new audit requirement threshold may wish to consider a voluntary audit for many reasons, including compliance with funding requirements, better access to new finance, continual improvement of internal systems with independent audit oversight and increased trust and credibility from stakeholders through enhanced transparency.
Exclusions to exemptions
Even if a company qualifies as small under UK company law, it may still be required to undergo an audit due to the nature of its activities or its corporate structure. Some entities are excluded from audit exemption regardless of size, such as:
- public limited companies
- financial services firms regulated by the Financial Conduct or Prudential Regulation Authorities
- companies within ineligible group structures
Furthermore, entities may be mandated for audit by the terms of their articles or because they are the subsidiary of a non-qualifying parent company.
Whether you’re wondering how the new thresholds apply to your business, whether your company may be excluded from exemption, or you’re interested in our wider audit services, our team is here to support you.
Ben Burch is Audit Director – you can contact Ben, or a member of his team, on 01242 776000 or email ben.burch@randall-payne.co.uk.
