From 6 April 2025, the UK government is making big changes to the way businesses are classified, which will have a knock-on effect on reporting requirements.
Thousands of companies will see a reduction in admin, reporting requirements and compliance costs. Larger businesses will also see changes, with certain reporting requirements being removed.
Sounds great, right?
Well, as with all things in accounting, the reality isn’t always that simple. Understanding how these changes affect you and whether you should take advantage of them is where a good accountant adds real value.
So, to help you prepare, we’re breaking down what these changes are and how you can make the best decision for your business.
What’s changing?
Revised Company Size Thresholds
Right now, businesses are classed as micro, small, medium or large based on turnover, balance sheet total and the average number of employees.
From 6 April 2025, the thresholds for classification are changing. A company will now qualify for a category if it meets at least two of the following three criteria:
- Micro-entities: Turnover ≤ £1 million, Balance Sheet Total ≤ £500,000, ≤ 10 employees.
- Small entities: Turnover ≤ £15 million, Balance Sheet Total ≤ £7.5 million, ≤ 50 employees.
- Medium entities: Turnover ≤ £54 million, Balance Sheet Total ≤ £27 million, ≤ 250 employees.
When these changes come into effect, it’s estimated that 113,000 entities will be eligible to move from small to a micro-entity, around 14,000 to move from medium to small and around 6,000 from large to medium.
Changing Reporting Requirements for Large Businesses
Alongside reclassification, the government is stripping back reporting requirements for large entities. Some of the requirements being scrapped include financial instruments reporting, R&D activity, overseas branch disclosures and employee and customer engagement reports.
How will this affect your business?
If your business moves from one category to another, you’ll see changes in your reporting obligations. Here’s what you need to know.
If you move from medium to small:
- No more statutory audits (unless as part of a bigger group!)
- No need to produce a Strategic Report outlining risks and long-term plans.
- Less paperwork = lower compliance costs.
If you move from small to micro:
- No need to submit a Directors’ Report.
- Financial statements become even simpler, with fewer disclosure requirements.
The government is allowing businesses to apply these changes straight away from 6 April 2025, rather than waiting two years to qualify. But before you throw your current reporting standards out the window, you need to think about whether it’s the right move for you.
Should you reduce your reporting?
While reducing admin sounds great on paper, there are times when more detailed accounts actually work in your favour – especially if you’re looking to secure investment or funding.
Before making a decision, consider:
- Investor and lender confidence: More detailed accounts help build trust with investors, lenders and potential buyers.
- Easier access to funding: Banks and investors often prefer businesses with detailed robust reporting.
- Stronger internal insights: Comprehensive financial statements give you a clearer picture of your business performance and growth opportunities.
- Better preparation for scaling: If you plan to grow your business, keeping higher reporting standards now could make future transitions easier.
There’s also the competitive edge – going above and beyond the minimum reporting requirements can set you apart from other businesses.
What’s next?
These changes kick in for the 2025/26 financial year, so now’s the time to review your business classification and decide whether adopting the new reporting requirements makes sense for you.
If you need help figuring out what these changes mean for your business, planning your financial reporting strategy or deciding whether to maintain higher disclosure levels, our team is here to help.
Get in touch today to chat through your options!
