The UK government’s planned changes to company size thresholds are set to take effect from 6 April 2025. These adjustments mean that some companies will no longer be required to undergo mandatory audits, and many will be eligible to use simpler reporting standards under FRS 105. As a result, businesses must review their financial reporting obligations and understand how these changes may impact them.
What Are the Changes?
The revised size thresholds will affect financial reporting requirements, with some businesses benefiting from reduced disclosure requirements and exemptions from statutory audits. However, no changes have been made to employee number thresholds—only monetary limits have been updated.
| Threshold | Micro | Small | Medium | Large |
|---|---|---|---|---|
| Prepare accounts under | FRS 105 | FRS 102 (Section 1A) | FRS 102 | FRS 102 |
| Audit Required? | Not required | Not required | Compulsory | Compulsory |
| Turnover | Up to £1m (previously £632,000) | Up to £15m (previously £10.2m) | Up to £36m (no change) | Over £36m (no change) |
| Gross Assets | Up to £500,000 (previously £316,000) | Up to £7.5m (previously £5.1m) | Up to £18m (no change) | Over £18m (no change) |
| Employee Numbers | Up to 10 (no change) | Up to 50 (no change) | Up to 250 (no change) | Over 250 (no change) |
To determine applicable accounting standards, companies must meet two out of three size thresholds for two consecutive years.
Group Considerations: Companies that are part of a group must consider both their individual size and the overall size of the group to determine audit requirements.
Changes to FRS 102
From 1 January 2026, major changes will come into effect regarding lease accounting under FRS 102. The distinction between operating and finance leases will be removed, meaning many leased assets will now be brought onto balance sheets instead of being expensed. This could impact the gross assets of small and medium-sized entities, potentially changing their financial reporting obligations.
Key Points:
- Most leases will now be recorded as assets and liabilities.
- Only short-term and low-value leases will remain off-balance-sheet.
- No changes will be applied to lease accounting for micro-entities.
Should You Still Have an Audit if It’s No Longer Required?
If your company falls out of the audit regime, you can still opt for a voluntary audit. An audit can provide assurance to investors, lenders, and stakeholders, improving financial transparency and credibility.
Get in Touch
If you would like more information about the upcoming company size threshold changes or to discuss the benefits of an audit, contact MNA Accountants at info@mnaaccountants.co.uk.