From accounting periods starting on or after 6 April 2025, company size thresholds have shifted upwards. These company size thresholds decide whether you prepare micro, small, medium or full accounts, and whether you need a statutory audit. For many owner-managed businesses, that could mean less reporting, a lower risk of mandatory audit – and some important choices to make.
The timing matters. The changes sit alongside ongoing reform of Companies House reporting and a tighter focus on accuracy and transparency. According to the latest Companies House guidance, the new thresholds now apply to micro, small and medium entities, and drive who can claim audit exemption (subject to some exceptions).
The scale of the potential impact is large. Government Business population estimates for 2025 show 5.7 million private sector businesses in the UK at the start of 2025, of which 5.64 million were small and just 38,435 were medium-sized. Most of those businesses will fall under the updated company size thresholds at some point in the next couple of years. This is the time to review where your company sits and how that affects your accounts, your audit and your wider reporting strategy.
How the new company size thresholds work
For periods beginning on or after 6 April 2025, company size thresholds are judged on three tests: turnover, balance sheet total and average number of employees. You qualify for a size category if you meet any two out of the three limits.
For UK companies, the main thresholds are:
- Micro-entities: Turnover no more than £1 million, balance sheet total no more than £500,000, no more than 10 employees.
- Small companies: Turnover no more than £15 million, balance sheet total no more than £7.5 million, no more than 50 employees.
- Medium-sized companies: Turnover no more than £54 million, balance sheet total no more than £27 million, no more than 250 employees.
Audit exemption for small companies uses the same financial limits as the small company size test – so if you qualify as small and you are not in an ineligible sector or group, you may not need a statutory audit.
The familiar “two-year rule” still applies. Normally, a company only moves size category once it has met, or failed to meet, the conditions for two consecutive years. However, the regulations include a transitional provision – you can assume the new thresholds applied in the previous year when assessing company size for the first financial year beginning on or after 6 April 2025.
In practice, that means a company with a 31 December 2026 year end can apply the new company size thresholds to both 2026 and 2025 for the purposes of the two-year rule. Many businesses will drop from medium to small, or from small to micro, sooner than they might expect.
Micro companies: Practical examples under the new company size thresholds
A common scenario is a trading company with:
- Turnover of £850,000
- Balance sheet total of £420,000
- Eight employees
Under the old limits, that company might have been treated as small. Under the new company size thresholds it is likely to fall into the micro-entity category, assuming those figures are consistent over the two-year rule period.
Micro-entities can:
- Prepare simpler accounts: Fewer disclosure requirements and a more straightforward balance sheet format.
- Claim small company audit exemption: Provided they meet the small company conditions and are not in an ineligible sector.
- Limit what is filed at Companies House: Although from 1 April 2027, profit and loss accounts will also need to be filed.
That sounds attractive, but there are trade-offs. A move to micro-entity reporting can reduce transparency for lenders and investors. If you are planning to refinance, bring in investors or sell the business in the next few years, moving straight to the simplest possible format may not be in your interests.
This is where a voluntary, proportionate assurance engagement or review can help. Our article on keeping your business audit-ready sets out simple steps to tighten records and controls, so you keep the option of an external review without over-complicating your year end.
Small companies: Accounts, audit and the two-year rule
Many companies that previously sat near the top of the old small limits will stay comfortably within the new small band. Others that were medium will now qualify as small once the two-year rule and transitional provision are applied.
For small companies from periods starting on or after 6 April 2025:
- Size tests: Turnover up to £15 million, balance sheet total up to £7.5 million, up to 50 employees.
- Audit exemption: Available if you qualify as small and are not in an ineligible sector or group, and shareholders holding at least 10% do not demand an audit.
- Reduced disclosures: You may be able to file abridged accounts and skip a strategic report.
Example: a wholesaler with turnover of £13 million, balance sheet total of £6 million and 70 employees will still be medium because it only meets one of the three small company thresholds. A manufacturer with turnover of £12 million, balance sheet total of £6 million and 45 employees will probably qualify as small, and so may fall out of mandatory audit, subject to the two-year rule and any group or sector restrictions.
If you are borderline, planning matters. You should model how growth, inflation and investment might move you across company size thresholds over the next few years. That planning should sit alongside your wider statutory reporting strategy – including how much financial information you want on the public record. Our guide to statutory reporting for companies provides a detailed overview of the main requirements.
Medium companies: Planning ahead when you still need an audit
Medium-sized companies will often still face a statutory audit, even under the higher thresholds. For periods beginning on or after 6 April 2025, you are medium if you meet at least two of: turnover up to £54 million, balance sheet total up to £27 million, and up to 250 employees.
Many former large companies will now be medium. They gain some relief in narrative reporting requirements but still need full accounts and an audit. Others will move from medium to small and potentially lose the audit requirement, although banks or investors may expect one to continue.
Medium companies should focus on:
- Forward projections: Map projected turnover, assets and headcount against the new limits to see whether you may move category in the next two to three years.
- Bank and covenant terms: Check whether dropping out of mandatory audit is permitted under loan agreements, and whether lenders are likely to ask for an audit report anyway.
- Group structure: Consider how acquisitions or restructuring might change where your group sits relative to the company size thresholds and the small group regime.
The latest ONS business activity bulletin notes 2.73 million VAT and PAYE businesses in the UK as of March 2025, with companies and public corporations making up over three-quarters of the total business population. For mid-market groups, small structural changes – such as merging entities or transferring trades – can move you across a threshold and affect reporting, tax and funding.
When an audit is still advisable, even if you are exempt
Even if the new company size thresholds mean you fall outside mandatory audit, it can still be worth continuing. Typical reasons include:
- Bank requirements: Lenders often prefer audited accounts, particularly where facilities are material or covenant-heavy.
- Shareholder comfort: Minority shareholders may want assurance that the numbers are robust and that governance is working.
- Exit or investment plans: Buyers and investors will usually expect at least a track record of reviewed or audited figures.
There is a middle ground between a full statutory audit and doing nothing. You might opt for a voluntary audit tailored to your risk areas, or a limited assurance engagement on specific balances or processes. Our audit services are designed to add value, not just tick the compliance box, by highlighting trends in performance, systems and controls.
Next steps to review your company size thresholds position
The uplift in company size thresholds is good news for many owner-managed companies. It can reduce administrative effort, cut audit costs and give you more control over what appears on the public record. But it also shifts responsibility onto directors to decide what level of assurance, disclosure and transparency is appropriate for the business.
If your current year started on or after 6 April 2025, you should already be assessing your position under the new company size thresholds, applying the transitional version of the two-year rule where relevant. That means checking both current and prior-year figures against the updated limits for turnover, balance sheet totals and employee numbers.
The risks of getting this wrong are not just technical. Misclassifying your company could lead to filing the wrong type of accounts, missing an audit when one is required, or filing late while you rework the numbers. At the same time, dropping out of audit without thinking through the impact on lenders, investors or your exit plans can store up problems for later.
If you would like tailored advice, we can review your accounts, projections and bank requirements to map out how the company size thresholds affect you over the next few years, and whether a voluntary audit still makes sense. Speak to our team for a clear view of your options and next steps.