Changes to company size limits and the Directors’ Report from April 2025

What are the new size thresholds?

A company qualifies as a micro, small or medium-sized entity if it meets two out of three of the following limits for two consecutive years (consolidated at group level if applicable):

Micro company

Small company

Medium company

NB: Gross means before any consolidation adjustments and set-offs; net means after such adjustments. Large companies continue to be those that are larger than medium companies.

Certain entities remain unaffected by this updated legislation even if they are below the size limits because they are not eligible to be classified as micro, small or medium-sized under the Act. This includes:

• public companies;
• FCA regulated MiFID investment firms;
• authorised insurance companies;
• banking companies;
• e-money issuers;
• UCITS management companies;
• certain pension scheme funders (funder of a Master Trust scheme within the meanings given by s39(1) of the Pension Schemes Act 2017);
• companies that carry on insurance market activity; and
• members of ineligible groups (as set out in Companies Act 2006 s384 and s467). 

We share information on further restrictions on micro entities specifically in this article.

What are the changes to the Directors’ Report?

Large and medium-sized companies will no longer be required to report on the below items in their Directors’ Report:

• information on risks relating to financial instruments;
• research and development activities;
• significant events that have occurred since the end of the financial year;
• likely future developments in the business of the company;
• the existence of branches outside the UK;
• the employment, training and advancement of disabled people; and
• engagement with employees, suppliers, customers and others.

The FRC has published guidance to help financial statements preparers navigate the new rules. This can be found here.

How can you be prepared for these changes?

The updated size thresholds and reporting requirements will apply to the financial statements for accounting periods that commenced on or after 6 April 2025. Therefore, any financial statements prepared from the year end 6 April 2026 onwards will need to be prepared with these changes in mind.

Companies should consider if they are likely to be affected by the size threshold changes and examine the impact on their reporting and audit requirements if they are to, for example, drop down from medium to small.

Get in touch

Navigating regulatory changes can be complex, especially when they affect both your financial reporting and company size classification. Whether you are unsure how the new thresholds apply to your group structure or need to update your financial reporting process, our team is here to support you.

Submit your information using the form below and we’ll be in touch.