Changes to UK Audit Thresholds from April 2025: What Businesses Need to Know
For financial years beginning on or after 6 April 2025, significant changes to company size thresholds and reporting requirements will come into effect, impacting financial statement for companies and LLPs. The new legislation, The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, aims to reduce reporting burdens for many UK businesses, making compliance simpler and less costly.
What’s Changing?
A company is classified as Micro, Small, or Medium-sized if it meets at least two out of the three criteria for turnover, balance sheet total, or number of employees. A company must exceed or fall below at least two of these thresholds for two consecutive years before its classification changes.
The old and new thresholds are noted below:
Impact on Audit Exemptions
The audit exemption threshold will remain aligned with the small company threshold. This means that businesses reclassified as small will benefit from:
- Exemption from statutory audits (unless they are part of a larger group that requires audits).
- No requirement to produce a Strategic Report.
- Simpler accounting requirements, reducing administrative work.
- Micro-entities will also be exempt from producing a Directors’ Report.
Transitional Rules: Immediate Benefits
Under normal circumstances, a company must exceed or fall below at least two of the three thresholds for two consecutive years before its classification changes. However, to help businesses take advantage of the new thresholds as soon as possible, the legislation includes a transitional provision. Companies assessing their size for financial years beginning on or after 6 April 2025 can assume that the new thresholds applied in the previous year. This ensures businesses can benefit immediately, rather than waiting fortwo consecutive years under the new rules.
What This Means for Your Business
Growing businesses will now have more leeway before falling into mandatory audit requirements. With the increased thresholds, companies can expand further before breaching the small company audit exemption limits, providing them with greater flexibility and reducing compliance costs during their growth phase.
These changes are designed to reduce the administrative burden for many UK businesses, allowing them to focus on growth rather than compliance. If your business is moving into a lower reporting category, you will benefit from less paperwork, fewer reporting obligations, and cost savings on audits.
It’s important to review your company’s classification under the new thresholds and determine whether you qualify for any exemptions.
For more details contact our resident audit expert Susan Thomas-Walls and Sanjay Myangar.