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A CHANGE IN LIMITS - Insight Training


After a number of years without any change, a government announcement in March 2024 has heralded an increase in the limits defining what a micro, small, medium and large company is.

This will, of course, have potential implications for the format of financial statements prepared by different companies – but it will also impact significantly on audit. Given that small companies in the UK don’t generally need an audit but medium sized companies do, it is estimated that the revisions will lift some 13,00 companies out of audit.

Here are some of the questions that we have been asked in recent days, since the announcement was made:

What exactly are the revised limits?

The proposed revised limits are as follows:






≤ £1M

(from £632K)


≤ £15M

(from £10.2M)

≤ £54M

(from £36M)

Gross Assets


(from £316K)

≤ £7.5M

(from £5.1M)

≤ £27M

(from £18M)

Employee Numbers

≤ 10

≤ 50

≤ 250


Does this just reflect inflation in recent times?

The increases do more than that. It’s about a government drive to reduce burden and red tape for smaller SME businesses. By increasing the limits by more than inflation (the small company turnover limit increase is nearly 50%), the government is also ‘future proofing’ the increases for further possible upticks in inflation.

When will the changes take effect?

The proposed implementation date is periods commencing on or after 1 October 2024. It’s not clear at this stage how any transitional rules will work.

Might the impending general election have any impact on what is being proposed?

These changes have not been passed into legislation yet and the government will need to move fairly quickly to ensure this happens before the election, which seems likely in the Autumn. A new government could potentially row back on the changes, so it is very much a question of ‘watch this space.’ However, given a similar drive to increase limits in the European Union this year, a complete change of heart seems unlikely.

What about the ‘gross limits’?

The ‘gross limits’ for turnover and gross assets (before consolidation eliminations) are used in differentiating between small, medium sized and large groups. Small groups don’t need consolidated financial statements, whereas medium-sized groups do.

There has been no announcement about changes to the ‘gross limits’. However, a corresponding change is surely likely. The ‘gross limits’ are currently 20% higher than the ‘net limits.’

Are many more companies likely to prepare accounts using FRS 105 going forward?

This could potentially be the case. FRS 105 accounts for micro-companies are extremely light touch and might not be fit for purpose where such a company his significant external stakeholders.

However, FRS 105 is not going away and with potentially significant changes coming down the line in the next couple of years that will require all companies to file information at Companies House on turnover and net profit, we can only anticipate FRS 105 becoming more popular for those entities that are eligible to use it.

Why are the employee number thresholds not changing?

The employee number thresholds are not changing at this time but a consultation on revisions is promised later this year with an increase likely to take effect later in 2024/2025.

Wasn’t this suggested a couple of years ago?

Indeed. A rather ‘left of field’ government pronouncement was made which advocated that any company with less than 500 employees should be categorised as small. This never came to anything at the time, but an increase now seems likely as part of a more general shake-up of different company categories.

What directors’ report changes are being proposed?

This drive for greater simplification has identified a number of directors’ report disclosure requirements (mainly relevant to medium-sized and large companies) which are either antiquated or duplicate disclosure requirements elsewhere. These disclosures will now disappear. Notable examples include information on the employment of disabled people, disclosures about the use of financial instruments, information about branches, details of employee, supplier and customer engagement and details of future developments and post balance sheet events.

I’ve heard that the changes will affect digital filing. How so?

There will be no immediate move to mandatory digital filing of annual reports. However, the current presumption in the Companies Act 2006 that the directors have a duty to share annual accounts and reports via physical copies of the report will be removed – so that electronic sharing of reports can become the default.

Anything else?

Yes. As part of the consultation taking place later this year, the government is proposing to remove the need for medium-sized companies to produce a strategic report. Again, watch this space!

Where can I find more information?

The ‘impact assessment’ that complements the government announcement is useful and can be accessed  here . A helpful article from ICAEW’s Reporting Faculty can also be accessed here .

Peter Herbert

April 2024

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