Applying company size thresholds under the Companies Act 2006 is rarely straightforward. This complexity increases when dealing with group entities or situations where a company transitions between size categories mid-year. With the UK government recently implementing significant changes to these thresholds effective for accounting periods beginning on or after 6 April 2025, it’s essential for finance professionals to understand what has changed, how to apply the new rules, and why it matters.

In her recent webinar, Company Size Thresholds - How They Apply and What Has Changed, Claire Thomson gave great insight into the changes.

What Has Changed?

The company size thresholds used to determine whether a company qualifies as micro, small, medium, or large have been significantly uplifted. These thresholds apply to accounting periods beginning on or after 6 April 2025, which means companies with year-ends on or after 30 April 2026 will be the first to apply the new limits.

Key Updates:

• Turnover and total assets thresholds have increased substantially.
• Micro-entities: Turnover up to £1 million (previously ~£632k)

• Small companies: Turnover threshold increased by nearly 50% from £10.2 million to £15 million
• Employee limits remain unchanged.
• The thresholds now align closely with Irish equivalents, essentially when switching Euro signs for Sterling.

These new limits are no longer based on translated EU benchmarks but are UK-determined figures, designed to better reflect current business environments.

Applying the New Thresholds

For periods starting before 6 April 2025, existing (old) thresholds still apply.

From periods beginning after 6 April 2025, the new thresholds can also be applied retrospectively to the comparative period. This transitional provision enables companies to qualify for a new size category a year earlier than they otherwise might.

For example, a company with a 30 April 2026 year-end can use the new thresholds for both the current and prior year (FY25), provided that both meet the criteria for a smaller category. This could allow a medium-sized company to reclassify as small if it now meets two of the three updated conditions (turnover, total assets, employees).

Why This Matters

1. Regulatory Simplification and Reduced Disclosure

With the reclassification of companies under the new thresholds:

• More companies will qualify as small or micro, gaining access to simplified financial reporting frameworks such as FRS 105 or Section 1A of FRS 102.
• Narrative reporting requirements have been reduced for medium and large companies, cutting down duplicative disclosures in the directors' report and strategic report.

2. Strategic Filing Decisions

These changes come amid a broader move to eliminate filing exemptions, meaning all companies may soon need to file full accounts. Companies might find it beneficial to voluntarily move to a smaller category (e.g., from FRS 102 to FRS 105), where “full” accounts are still significantly simpler and shorter (e.g., no deferred tax, no cash flow statement, fewer disclosures).

3. Cost and Compliance Implications

Being classified as a small or micro entity:

• Reduces preparation time and compliance costs
• May exempt the company from audit requirements
• Involves fewer statutory disclosures, benefiting both preparers and readers

However, stakeholders such as banks or investors may still demand audited accounts, so external expectations must also be considered.

Next Steps for Companies

1. Review upcoming year-ends to determine when the new thresholds will first apply.
2. Reassess company size classification under the new limits—especially if previously borderline.
3. Explore opportunities to simplify reporting by moving to FRS 105 or Section 1A where eligible.
4. Communicate with clients or internal stakeholders early to prepare for the upcoming shift, particularly in light of concurrent changes under the revised FRS 102 standard.

For the full webinar, please click here. In this course, Claire Thomson discuss:

• How the thresholds apply to both single entities and to group companies
• The impact of company size on audit, consolidation and disclosure requirements
• The recent uplifts in company size thresholds, and how these are applied going forward.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.