Simplifying company reporting – changes to company size thresholds and narrative disclosures coming soon

As part of the Government’s wider Non-Financial Reporting Review which commenced in May 2023, two new Statutory Instruments have been enacted in recent months which aim to reduce the financial reporting burden on companies. The legislation has increased company size thresholds and has removed duplicate or low-value disclosures from both the directors’ report and the directors’ remuneration report.
 

1) Company size thresholds

For the first time since 2013 company size thresholds are changing. The new legislation has increased the monetary thresholds by approximately 50% to reflect the impact of inflation from the last time they were set. 

The changes will enable more companies to take advantage of simplified reporting requirements. The government has estimated that approximately 6,000 companies will move from being large-sized to medium sized, 14,000 will move from being medium-sized to small-sized and a further 114,000 companies will move from the small category to the micro-entity category.
 

What are the changes?

The current size criteria for micro, small and medium companies, LLPs and groups are set out below together with the new criteria which are effective for accounting periods beginning on or after 6 April 2025. All amounts are ‘not more than’ and to qualify in the respective size category a company, LLP or group must meet two of the three criteria for two consecutive years (the ‘two-year rule’). 

Individual company or LLP

	Accounting periods beginning before 6 April 2025			Accounting periods beginning on or after 6 April 2025
	Micro	Small	Medium	Micro	Small	Medium
Turnover	£632k	£10.2m	£36m	£1m	£15m	£54m
Balance sheet total	£316k	£5.1m	£18m	£500k	£7.5m	£27m
Number of employees	10	50	250	10	50	250

Groups

	Accounting periods beginning before 6 April 2025		Accounting periods beginning on or after 6 April 2025
	Small	Medium	Small	Medium
Turnover	£10.2m net (or £12.2m gross)	£36m net (or £43.2m gross)	£15m net (or £18m gross)	£54m net (or £64m gross)
Balance sheet total	£5.1m net (or £6.1m gross)	£18m net (or £21.6m gross)	£7.5m net (or £9m gross)	£27m net (or £32m gross)
Number of employees	50	250	50	250

There have been no changes to employee numbers or to ineligibility criteria (which can prevent a company from been classified as small or medium-sized even where the size thresholds are met).

The two-year rule in the first year of application

The government has included a transitional provision in the first year that a company is subject to the new size criteria. This will ensure that any changes to a company’s size can be implemented immediately and not delayed using the usual two-year rule.  

In the first year of application, the transitional provision allows companies to apply the new size criteria retrospectively to the comparative year as if the criteria had always existed. As an example:

Entity A has a year-end of 31 December. For 31 December 2024, 31 December 2025 and 31 December 2026 the entity had a turnover of £13m, a balance sheet total of £6m and 70 employees. 

• The entity is medium-sized at 31 December 2025 as it has exceeded the small criteria for 2 consecutive years.
• The entity will apply the new size criteria for the first time for the year ended 31 December 2026 and assess both the current and comparative year using those criteria. The entity now meets two out of the three small-sized criteria for the current year and the comparative period and is therefore a small-sized company for 2026.

 

What are the benefits? 

Depending on the size of the company, there can be substantial benefits obtained from the simplification of reporting and auditing requirements.

Companies moving from medium-sized to small-sized are likely to benefit from the most significant changes, such as:

• Small companies are able to apply the small companies regime which allows exemptions from some statutory disclosure requirements in the financial statements.
• Small companies are not required to prepare a strategic report.
• Companies applying the small companies regime can also adopt FRS 102 Section 1A which simplifies presentation and disclosure requirements in the financial statements. 
• Small companies may be exempt from the requirement to prepare group accounts where they are the parent of a small group.
• Small companies may be able to take an exemption from audit. Where a small company is part of a wider group this will be dependent on that group also being small.

 

Companies which move from being small-sized to being a micro-entity will be eligible to apply the optional micro-entity regime.  This provides additional simplifications to reporting requirements such as an exemption from preparing a directors’ report and the ability to apply FRS 105.

Companies which move from being large-sized to medium-sized will benefit from a small number of disclosure exemptions in the directors’ report and the strategic report, the main one being that there is no requirement to include a s172 statement in their annual report.
 

Watch out for Streamlined Energy and Carbon Reporting (SECR)

The size limits for SECR disclosures for unquoted companies are not changing. The size criteria is currently the same as the medium-sized company limits, for example, an individual company or LLP is exempt from providing SECR disclosures where they meet two out of three of the following:

• not more than £36m turnover
• not more than £18m balance sheet total and
• not more than 250 employees.

 

For accounting periods beginning on or after 6 April 2025 the size criteria will remain the same and therefore this could result in some medium-sized companies, LLPs or groups still being required to include SECR disclosures in their annual report.
 

2) Directors’ report 

The following disclosure requirements have been removed from the directors’ report with effect for accounting periods beginning on or after 6 April 2025 for all companies. It may, however, be the case that some of these disclosures will still be required elsewhere within the annual report or the notes to the financial statements to ensure compliance with accounting standards or the Regulations.

• Disclosures concerning the employment of disabled people
• Financial instruments (financial risk management objectives and policies and the exposure of the company to price risk, credit risk, liquidity risk and cash flow risk)
• Existence of branches
• Employee engagement
• Engagement with suppliers/customers/others
• Significant events after the balance sheet date
• Likely future developments
• Activities in the field of R&D

 

3) Directors’ remuneration report 

The government has made two changes to simplify the reporting requirements of the directors’ remuneration report. These changes have a different effective date – they apply for accounting periods beginning on or after 11 May 2025.

The first simplification is to remove unquoted traded companies from the requirement to prepare a directors’ remuneration report. Unquoted traded companies are those which have shares traded on a UK or EU regulated market but are not quoted on the Official List. The government highlighted that there are currently 8 unquoted traded companies in the UK, all of which only have non-executive directors paid an annual fixed fee. As a result, the requirement to prepare a directors’ remuneration report was deemed disproportionately burdensome and has therefore been removed. 

The second amendment is to remove certain disclosures from the report.  Similar to the changes to the directors’ report, some of the requirements overlap with other disclosures elsewhere or are deemed to add little value to stakeholders. The main changes are as follows: 

• The single figure table can omit the columns headed ‘Total Fixed Remuneration’ and ‘Total Variable Remuneration’
• The annual % change in remuneration of directors and employees has been removed
• The scheme interest table does not require details of changes in the exercise price or date for share options
• Some disclosures within the directors’ remuneration policy section are no longer required, although companies which apply the UK Code of Corporate Governance should also consider whether the details are still required to comply with the Code.

 

In addition, there is no longer a requirement for the directors’ remuneration report to be made available on the company website for ten years.

The full details of the legislation changes can be found on the Governments website as follows:

• Changes to company size thresholds and the directors’ report - The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303)
• Changes to the directors’ remuneration report - The Companies (Directors' Remuneration and Audit) (Amendment) Regulations 2025 (SI 2025/439)

For more information, please contact Anthony Appleton.