On 10 December 2024, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 were laid before Parliament, together with an Explanatory Memorandum. The regulations, which come into force on 6 April 2025, increase the financial thresholds that determine company size for the purpose of non-financial reporting obligations under the Companies Act 2006 and remove several requirements from the directors' report considered to be redundant. The government announced the changes in a Written Statement made to Parliament in October 2024, which also outlined plans to consult in 2025 on broader proposals to simplify and modernise the UK's non-financial reporting framework and other company law reforms (see FC Feature 14 October 2024).
Background
In March 2024, the previous government announced that it would bring forward legislation to raise the turnover and balance sheet thresholds that determine company size by 50% to take account of inflation since they were last set in 2013 and ensure they remain proportionate and fit for purpose (see FC Feature 19 March 2024). It also committed to removing certain requirements from the directors' report and the directors' remuneration report and policy, making it easier for companies to issue digital annual reports, as well as correcting certain 'technical issues' identified in the audit regulatory framework following the assimilation of EU law into UK law.
The government subsequently launched a consultation in May 2024 on proposals to increase the maximum employee threshold for medium-sized companies from 250 to 500 and exempt them from the requirement to produce a strategic report (see FC Feature 16 May 2024). The current government confirmed in its response published in October 2024 that these proposals would not be taken forward in the short term but form part of the government's wider review of non-financial reporting planned for 2025 (see FC Feature 14 October 2024).
Regulations
Increased financial thresholds for company size classifications
Under Part 15 CA 2006, a company can be classified by reference to its economic size as a micro-entity, small, medium-sized or large company. The qualifying conditions for each size classification require that a company does not exceed two out of three specified maximum thresholds for annual turnover, balance sheet total and number of employees.
The regulations will increase by approximately 50% the annual turnover and balance sheet thresholds in CA 2006 for micro-entities, small and medium-sized companies in relation to financial years beginning on or after 6 April 2025. No amendments are required in relation to large companies, which are classified as such if they exceed the thresholds to qualify as medium-sized. Corresponding amendments will be made to the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 so that the same increased thresholds apply to limited liability partnerships (regulation 11). The employee thresholds are unaltered.
Transitional provisions in regulation 3 provide that the new thresholds will apply when considering qualification as a particular company size by reference to a previous financial year.
Changes to the directors' report
Part 2 of the regulations will remove a number of existing requirements in the directors' report that overlap with other reporting requirements or are of limited value to investors and other stakeholders. These include information concerning:
First published on the Corporate News Service on 10 December 2024.
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