In December 2024, legislation was passed to increase the monetary thresholds which determine whether a company is a small, medium or large-sized company. These NEW thresholds are also relevant for LLPs and apply for accounting periods commencing on or after 6 April 2025.
The current and NEW size thresholds, including the group thresholds, are summarised below.
| Threshold measure | Current | NEW | Current | NEW |
| Small | Small | Small group | Small group | |
| Turnover not exceeding | £10.2 million | £15 million | £10.2 million net (or £12.2 million gross) | £15 million net
(or £18 million gross) |
| Total assets (fixed plus current assets) not exceeding | £5.1 million | £7.5 million | £5.1 million net
(or £6.1 million gross) |
£7.5 million net
(or £9 million gross) |
| Average number of employees not exceeding | 50 | 50 | 50 | 50 |
| Threshold measure | Current | NEW | Current | NEW |
| Medium | Medium | Medium group | Medium group | |
| Turnover not exceeding | £36 million | £54 million | £36 million net
(or £43.2 million gross) |
£54 million net
(or £64 million gross) |
| Total assets (fixed plus current assets) not exceeding | £18 million | £27 million | £18 million net
(or £21.6 million gross) |
£27 million net
(or £32 million gross |
| Average number of employees not exceeding | 250 | 250 | 250 | 250 |
In order to satisfy the size criteria, two out of three of the thresholds must be met for two out of the last three accounting periods. However, a company will not qualify as a small or medium-sized company if it is ineligible, or is part of an ineligible group, the latter of which includes a traded company or an insurance market activity.
When assessing size criteria for accounting periods commencing on or after 6 April 2025, the NEW thresholds are treated as always having been in place to prevent any mismatches in assessing the last three accounting periods to determine size qualification.
Parent companies
In the case of a parent company, the small and medium group thresholds are relevant, as the size of a parent company is determined by the size of the group that it heads. This also applies to intermediate parent companies.
The net basis or gross basis can be used in determining the turnover or total assets group thresholds. The gross basis is before elimination of any consolidation adjustments (including, but not limited to, intra group balances and transactions) whilst the net basis is after elimination of consolidation adjustments.
Audit exemption
Audit exemption is also determined by the small thresholds. In the case of a parent company, assuming it is not ineligible or part of a larger group, it must first qualify as small in its own right and secondly, the group that it heads must also qualify as small.
A potential opportunity?
Certain companies may be able to take advantage of audit exemption going forward, by virtue of the changes in the thresholds.
If, for example, a company exceeds certain of the current thresholds and is therefore required to have a statutory audit, but is not anticipated to exceed the NEW thresholds, it may be possible to change its year end to 30 April 2025.
That could become the last period requiring a statutory audit with the accounting period starting on 1 May 2025 being assessed under the NEW threshold rules.
A word of caution
Whilst the increases in the total assets thresholds appear, on the face of it, generous, the impact of these could be soon eroded. Revisions to Financial Reporting Standard 102 (FRS 102) take effect for accounting periods beginning on or after 1 January 2026.
One of the significant changes to FRS 102 involves lease accounting and aligns with the principles of IFRS 16 Leases, requiring operating leases to be recognised as “right-of-use fixed assets” on the balance sheet.
Depending on a company’s circumstances, this could result in significant increases in a company’s or group’s total assets, resulting in a small company, or group, becoming medium, and a medium company, or group, becoming large.
