The Government recently announced its intention to introduce legislation this summer to make changes to the company size thresholds. The aim is to reduce the burden of regulatory and non-financial reporting requirements for small and medium sized companies. It is anticipated that these changes will be applied for financial years starting on or after 1 October 2024. A summary of the proposed threshold changes is provided in the table below:

Company and group size thresholds

In each case, the requirement is to be no more than the limit set other than for large

entities which will be in excess of the stated limits.

2 of 3:	Micro company		Small		Medium		Large
	Old	Proposed	Old	Proposed	Old	Proposed	Old	Proposed
Annual turnover	£632k	£1m	£10.2m	£15m	£36m	£54m	£36m	£54m
Balance sheet total	£316k	£500k	£5.1m	£7.5m	£18m	£27m	£18m	£27m
No. of employees	10	10	50	50	250	250*	250	250*

* In addition, the government also plan to consult on employee numbers for medium sized companies, raising the maximum number of employees from 250 to 500.

The size thresholds above will still need to be considered alongside existing Qualitative criteria, for example a charitable company will not be eligible to the reporting and filing exemptions afforded to Micro Entities.

The size thresholds above will continue to need to be met on a two-year rolling basis for certain financial reporting and filing exemptions to apply.

Further consultation is expected on other changes including:

• removal of reporting items from the Directors’ Report, particularly where this is overlapping requirements with the Directors’ Remuneration Report;
• make it easier for companies to issue digital annual reports; and
• potential exemptions for medium-sized companies from including a Strategic Report within their Annual Report.

Audit Exemption

A potential implication of the change to company size thresholds relates to the requirement to have an audit, where companies that move into the small size category, may be eligible for exemption from audit. Unlike the financial reporting and filing exemptions, this is assessed on an annual basis, rather than a rolling two-year period. However, for charitable companies, the charity thresholds for audit will still apply.

Charity thresholds

A review of charity thresholds is likely to occur in the future, but as of yet, there are no reported changes to the current thresholds. As such, if an eligible small charitable company chooses to claim audit exemption under the Companies Act then an audit requirement would still arise under the Charities Act for charities with:

• annual income in excess of £1 million, or
• income of more than £250,000 and gross assets of more than £3.26 million.

There will also continue to be other times when an audit is required or determined to be of value to an entity, for example, to secure additional funding or if an audit is required by the governing document.

As more information about the changes emerge, we will keep you up to date. In the meantime, please feel free to discuss the impact of the potential changes with your Audit Manager or Audit Partner.