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How New Company Size Thresholds Could Change Your Reporting and Audit Obligations in 2025

  • Writer: Asli Saka
    Asli Saka
  • Oct 6, 2025
  • 3 min read

Published by Finsight Advisory | October 2025



Introduction

From 6 April 2025, the landscape of UK financial reporting is changing. Many companies that currently fall within the medium or large categories could soon qualify as small or even micro under new company size thresholds.


This shift could unlock audit exemptions, simplified reporting, and a meaningful reduction in compliance costs, but only for those who understand the new rules and plan ahead.


Here, Finsight Advisory explains how the new thresholds work, why they’re being introduced, and what actions finance leaders should take to prepare.


What’s Changing and Why


Under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, new thresholds apply to financial years beginning on or after 6 April 2025.


The update brings long-overdue inflationary adjustments to the company size limits set back in 2013, helping to reduce the administrative burden on smaller and mid-sized businesses.

Classification

Turnover (up to)

Balance Sheet (up to)

Employees (avg.)

Micro-entity

£1 million

£500,000

10

Small

£15 million

£7.5 million

50

Medium

£54 million

£27 million

250

To qualify, a company must meet two of the three criteria for two consecutive years.


Government data suggests that around 14,000 companies and LLPs will move from “medium” to “small” under the new rules — potentially freeing them from the statutory audit requirement.

(Sources: ICAEW, GOV.UK, Bishop Fleming)


Why This Matters for Business


1. Potential Cost Savings

Companies reclassified as small may qualify for audit exemption under UK law. For many businesses, this could mean saving thousands in annual audit fees.


However, before removing audit altogether, it’s important to consider the expectations of lenders, investors, or shareholders who may still require independently audited accounts.


2. Simplified Reporting

Smaller entities enjoy simplified financial statement preparation, are exempt from producing a Strategic Report, and, for micro-entities, no longer need to prepare a

Directors’ Report.


This simplification means less administrative work, lower accounting costs, and faster reporting cycles — freeing finance teams to focus on forward-looking activities.


3. Reputational and Stakeholder Considerations

Audit-free doesn’t always mean risk-free. Transparency and credibility still matter to banks, investors, and suppliers. In some cases, maintaining voluntary audit or limited assurance may protect stakeholder confidence, particularly for growing businesses preparing for future funding rounds.


How to Prepare


Step 1 – Review your financials early

Use your 2023/24 and 2024/25 data to test whether you’ll qualify as small or micro under the new thresholds.


Step 2 – Project forward

Because thresholds must be met for two consecutive years, model whether your business will consistently meet the new limits.


Step 3 – Reassess your audit strategy

If eligible for exemption, weigh the potential savings against the strategic benefits of audited accounts.


Step 4 – Update your internal processes

Smaller reporting frameworks require different disclosures and document layouts. Ensure your systems and templates are ready in time for the first year of application.


Step 5 – Communicate early Brief your board and external stakeholders on the changes so expectations are aligned well before your next year-end.



Finsight’s View

This reform offers genuine relief for thousands of UK businesses, but it also demands clear analysis. A poorly judged classification change could lead to compliance gaps or reputational risk.


At Finsight Advisory, we help finance leaders model these impacts and implement right-sized reporting strategies. If you’d like an independent review of how the 2025 thresholds affect your company, our advisory team can guide you through it.



Key Takeaways

  • New company size thresholds apply to financial years beginning on or after 6 April 2025.

  • Turnover limit for small rises to £15 million, and balance sheet total to £7.5 million.

  • Companies meeting two of the three criteria for two years may reclassify.

  • Smaller entities could benefit from audit exemption and simpler filing obligations.

  • Plan ahead to ensure compliance and preserve stakeholder confidence.



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