2025 company size thresholds: what accountants and bookkeepers need to know

UK company size thresholds have changed for 2025. The thresholds have risen for micro-entities, small, medium, and large companies. This impacts how your clients’ businesses are classified, and could affect which disclosures they need to make to Companies House.

Here, we cover the changes to company size thresholds, what it means for your practice and clients, and how to support your clients.

Why did company size thresholds change?

Back in 2024, the previous government announced that UK company size thresholds would be increasing. The aim was to lift the thresholds so that more companies are classified as small and medium, meaning they have fewer reporting requirements and less of an administrative burden.

According to government guidance, the changes are set to save SMEs £150 million per year, and 100 million hours each year in total. The increased thresholds mean businesses that may previously have been in a larger category, are in a smaller one.

Micro-entities and small companies are also exempted from audits. Some small companies can’t take advantage of this exemption, so it’s worth checking Companies House guidance to see if your clients qualify. The audit thresholds two year rule also means small companies must be classified as small for two years to qualify for exemption.

The new UK company size thresholds explained (effective April 2025)

Here are the new company size thresholds for 2025. Companies need to meet at least two of the conditions for their category:

For micro-entities, no more than:

• £1 million annual turnover (previously, £632,000)
• £500,000 balance sheet (previously, £316,000)
• An average of 10 employees – this is unchanged from previous company size thresholds

For small companies, no more than:

• £15 million annual turnover (previously, £10.2 million)
• £7.5 million balance sheet (previously, £5.1 million)
• An average of 50 employees – this is unchanged from previous company size thresholds

For medium-sized companies, no more than:

• £54 million annual turnover (previously, £36 million)
• 27 million balance sheet (previously, £18 million)
• An average of 250 employees – this is unchanged from previous company size thresholds

Any companies that don’t meet the above requirements are classified as large companies.

All companies need to file annual accounts with Companies House – including limited liability partnerships (LLPs), dormant companies and flat management companies.

What this means for your clients and practice

The first step you should take is to segment your clients based on the new thresholds. Being in a different thresholds could mean your clients have reduced reporting requirements. For example, companies that now qualify as small may be entitled to an audit exemption. Not every company will be able to take advantage of audit exemption, and it could be the wrong choice for growing clients.

If the client qualifies as a small business but is likely to move above that threshold in the coming years, it may be best to keep their existing reporting processes in place. Even if it means reporting more than they need to currently. It’s wise to think through each client case, and consider whether going beyond their mandated reporting requirements is worthwhile.

The directors’ report and strategic report have also been streamlined, with duplicate disclosures removed to make reporting easier. For example, companies no longer need to disclose information on financial instruments and research and development.

Also, note that Companies House filing requirements are changing further. Soon, all companies will need to use software to submit annual accounts and tax. And, smaller companies will need to disclose profit and loss reports. But, you can get ahead of these changes, by implementing Companies House reporting software now.

Already, there are software options, such as Xero, that will enable you to comply with the upcoming changes. The earlier you start, the easier it will be for clients to transition.

Guiding your clients on new Companies House thresholds with software

It’s a great time to review all of your company clients, and check which categories they fall in. From here, you can advise them on their reporting requirements and provide support where needed.

Make sure you communicate these changes to clients, and explain what it means for their businesses. You could update clients in an email newsletter, your regular meetings, or a message. Make sure to go through each client case individually, to check if they should follow reduced reporting requirements or maintain existing processes.

Regardless of their reporting category, all clients benefit from clear, accurate recordkeeping. The quality of client records has a direct impact on how easily you can prepare annual accounts and tax submissions for them, so ensuring reconciliations are up to date, and you have access to reliable reporting software is key.

Xero accounting software for practices can help you keep clients compliant with new Companies House rules. You can file company accounts using Xero Tax, Xero connects with Companies House, so you can retrieve data and file accounts for FRS 102 1a abridged and full accounts as well as FRS 105. Also, prepare and file CT600 returns directly to HMRC.

“We love using Xero Tax for corporate accounts and tax, the workflow and compare features made the process flow with ease and speed. I can’t wait to put more and more returns on!” - CBA Services Ltd

Use Xero to keep up with Companies House changes

New micro, small, and medium size company thresholds should ease the administrative burden for your clients and practice. But, combined with upcoming Companies House changes, it may be wise to uphold existing disclosures for clients.

Across all client sizes and types, the right software can help you maintain reliable records for annual accounts and tax, and generate reports as part of Companies House disclosures. There’s plenty of transformation to come for the accounting industry in 2025, and with more Companies House changes on the way, embracing software will become essential for your company clients. Getting them onboard early will give them plenty of time to familiarise themselves with software.

Plus, practices and businesses can find efficiencies with modern cloud-based accounting software, so you could also help your clients save time on admin and simplify compliance. We’re always developing Xero products to make sure clients and practices have the tools for compliance.

Check out our accountant and bookkeeper guides for more help running a successful practice.