A 50% increase was expected in a bid to cut complexity and burden from reporting requirements.

Following the change of government over the summer these plans have remained on the table, but the timeframes and details have now changed, further details of which are included below.

Proposed size thresholds

Micro

Small

Medium

The changes are expected to result in:

• 5,000 large companies being reclassified as medium-sized to access more proportionate reporting;
  
• 13,000 medium-sized companies falling into the small companies’ regime enabling them to benefit from potential audit exemption and filing filleted accounts (until this provision is removed); and
  
• 113,000 small companies falling into the micro-entities’ regime to allow them to prepare FRS 105 micro accounts.
  

Assumptions

It is currently assumed that the existing rule will be retained under which two out of three of these limits must be exceeded for two consecutive years. It is also assumed but not confirmed that the alignment of the audit exemption thresholds with small company financial reporting thresholds for standalone companies, will be retained.

Other proposals

The Conservative Government had also planned to remove several minor disclosure requirements from the Director’s Report; the new Labour Government has retained this part of the proposals.

There were also plans to consult later in 2024 on amending the definition of a medium-sized company for company financial reporting. This aimed to increase the threshold on the maximum number of employees to be classed as a medium-sized company from 250 to 500.

The Government was also due to consult on providing an exemption from medium-sized companies having to include a Strategic Report in the Annual Report.

However, following the change of government and feedback received, these proposals will not be taken forward. Instead, the Department of Business and Trade will undertake a detailed consultation on the Future of Corporate Reporting which will be launched next year. Read more at icaew.com  

It’s safe to say that SME’s around the country will again be left frustrated by this further delay and stalling of any momentum behind bringing about change to an increasingly burdensome reporting landscape.

Effective date

The changes were originally anticipated to come into effect for accounting periods commencing on or after 1 October 2024, thus impacting on 30 September 2025 year ends onwards.

However, these changes are now deferred into 2025 and are expected to come into effect from 6 April 2025. Final legislative detail will be awaited to confirm the accounting periods affected.

What does this mean for me?

Aside from the potential reduction in reporting referenced above, the main consideration is if these changes might impact whether your business(es) needs an audit or not moving forward.

For those businesses who are already exceeding the proposed new limits, there is little or no direct opportunity for planning around this, and wider planning should not be driven by the objective to fall out of the audit regime alone.

Where planning may be possible is for those businesses that are exceeding the existing limits but would fall below the proposed limits and might expect to do so moving forward, at least over the next two to three years.

In that scenario, it may be possible to amend (shorten or extend) accounting period dates, such that one ‘final’ period can be prepared and audited, after which the company falls out of the audit regime.

It should be noted that a company cannot extend its accounting period date beyond an 18-month period and therefore this will have some limitations in its application.

Businesses should also be mindful of “flip-flopping” in and out of the audit regime and the potential impact this has on the audit work required and/or opinion reached. It is always important to ensure that there is a full understanding of what is required in order to ensure that subsequent periods are not adversely affected, and the unintended consequences that can result, including, by way of example, a decline in credit rating amongst other things.

How can Rickard Luckin help?

The team at Rickard Luckin will be keeping up to date with the position over the course of the coming months as it develops and as legislation is tabled. If you think your business may be affected by the changes and would like to talk to somebody about what practical impact this may have on you, or any planning that might be possible, please get in touch .