Company reporting changes: Reducing the regulatory burden

The Government has announced several changes that are set to reduce the regulatory burdens associated with financial reporting for thousands of companies. In doing so it hopes to directly benefit both the preparers and users of annual reports and accounts and deliver deregulatory savings of around £150 million per year for the UK economy.

Company size limits

Whilst full details of the proposals are not yet known, the announcement did reveal changes to the company size limits, with increases planned in the region of 50%.

The proposed new size limits are as follows:

As at present companies will need to meet 2 out of 3 the size criteria for two consecutive years to be able to be classified as being a micro, small or medium-sized entity, with certain ineligible companies unable to be treated as such due to the nature of their activities or those of the group in which they are a member.

These changes will enable more companies to take advantage of simpler reporting rules. The Government estimates that 5,000 companies currently classified as being large in size will become medium-sized and gain access to more proportionate reporting, 13,000 medium-sized companied will be reclassified as being small and able to produce accounts with fewer disclosure requirements and take advantage of audit exemption, and 113,000 small companies will become micro-entities and have the option of preparing simpler accounts.

The Government also plans to remove several requirements from the directors’ report and directors’ remuneration report that are considered to be of low value, duplications of other requirements or have become obsolete, along with some fixes to issues in the audit regulatory framework that have been identified following Brexit. Details of these changes are not yet known.

The date these changes will be introduced is also not yet known, but the required legislation is expected in the summer.

Other planned changes

Also announced is a planned consultation on reducing the regulatory burden further, which could see further changes to the company size criteria by doubling the medium-sized company threshold for the average number of employees to 500, exempting medium-sized companies from having to produce a strategic report and exempting smaller public interest entities from audit tendering and rotation requirements.

The announcement though didn’t provide any news on when previously announced changes to small company accounting and reporting will come into effect. Our previous blog on The Economic Crime and Corporate Transparency Act 2023 reported on these changes, which include:

• The removal of the ability for small companies to prepare abridged accounts or from being able to omit the directors’ report and profit & loss account from the annual report and accounts filed with Companies House.
• Micro-entities having to file their profit & loss account with Companies House.

Despite the Act being passed into law last year, the commencement date for these provisions has still not yet been announced.

The full Government Statement made on 19 March 2024 on simpler corporate reporting