UK company size thresholds 2025: what the changes mean for your practice

Published Thursday 11 June 2026

Table of contents

• Why did UK company size thresholds change?
• What are the new UK company size thresholds?
• How the transitional provision works
• What audit exemption means under the new thresholds
• How the threshold changes affect reporting requirements
• Guiding your clients through the changes
• Simplify Companies House compliance with Xero
• FAQs on UK company size thresholds

Key takeaways

• Higher thresholds from 6 April 2025. Turnover and balance sheet limits have risen by roughly 50% across micro, small, and medium categories, reclassifying an estimated 133,000 entities into smaller size bands.
• Transitional provision removes the wait. For accounting periods beginning on or after 6 April 2025, you can assume the new thresholds applied in the previous year too, so eligible companies benefit immediately.
• More companies qualify for audit exemption. The expanded small company category means fewer mandatory audits, though exclusions still apply for public companies, banking and insurance firms, certain groups, and where shareholders holding 10% or more demand one.
• Reporting requirements are streamlined. Duplicate disclosures in directors' reports have been removed, and companies moving to a smaller category face fewer filing obligations overall.

Why did UK company size thresholds change?

The previous company size thresholds were set in 2013 and had not been updated for over a decade. They no longer reflected inflation or the economic reality facing UK businesses, meaning companies were hitting reporting obligations that were designed for much larger operations.

In 2024, the government introduced The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 to raise the thresholds. The aim: classify more companies as small or medium, reduce reporting burdens, and free up time better spent running the business.

According to government estimates, the changes are expected to save SMEs around £150 million per year and at least one million hours annually. Around 113,000 entities move from small to micro, roughly 14,000 shift from medium to small, and approximately 6,000 move from large to medium.

What are the new UK company size thresholds?

The updated thresholds apply to accounting periods beginning on or after 6 April 2025. Companies need to meet at least two of the three conditions for their category.

Micro-entities must not exceed:

• Turnover: £1 million (previously £632,000)
• Balance sheet total: £500,000 (previously £316,000)
• Average employees: 10 (unchanged)

Small companies must not exceed:

• Turnover: £15 million (previously £10.2 million)
• Balance sheet total: £7.5 million (previously £5.1 million)
• Average employees: 50 (unchanged)

Medium companies must not exceed:

• Turnover: £54 million (previously £36 million)
• Balance sheet total: £27 million (previously £18 million)
• Average employees: 250 (unchanged)

Any company exceeding the medium thresholds is classified as large. The same thresholds also apply to limited liability partnerships (LLPs), so you should review LLP clients against these updated limits as well.

For groups, the thresholds apply on both an aggregate and a net basis. If a parent company and its subsidiaries meet at least two of the conditions on a group level, the group qualifies for that size category.

How the transitional provision works

Normally, a company must qualify as small (or micro) for two consecutive financial years before it can claim the benefits of that size category. This is the standard two-year rule under the Companies Act 2006.

The 2024 regulations include a transitional provision that changes this. For accounting periods beginning on or after 6 April 2025, you can assume the new thresholds were applicable in the previous financial year too. In practice, this means your clients don't need to wait two years to benefit from reclassification.

If a client's current financial year starts on or after 6 April 2025 and they meet the new thresholds, they can apply the smaller category immediately. This is particularly useful for clients sitting just above the old limits who would otherwise have faced another year of higher-category reporting.

What audit exemption means under the new thresholds

With the raised thresholds, more companies now qualify as small and can potentially claim audit exemption. This could save your clients significant cost and time, particularly those that previously sat just above the old small company limits.

However, audit exemption isn't available to every small company. The following are excluded:

• Public companies. All public companies require an audit regardless of size.
• Banking and insurance companies. Regulated entities in these sectors cannot claim exemption.
• Certain group companies. Companies that are part of an ineligible group may not qualify, even if the individual entity meets the small company test.
• 10% shareholder demand. Shareholders holding 10% or more of the company's share capital can require an audit, overriding the exemption.

For clients who do qualify, it's worth discussing whether opting out of an audit is the right choice. Growing companies that expect to exceed the small company thresholds in coming years may benefit from maintaining audit-ready processes. Lenders or investors may also expect audited accounts, regardless of the statutory requirement. You can check the full eligibility criteria in the Companies House guidance on annual requirements.

How the threshold changes affect reporting requirements

Companies moving to a smaller size category will see reduced filing obligations. The extent of the change depends on which category they move into.

Companies reclassified as micro-entities can file the simplest set of accounts, with minimal notes and no requirement for a directors' report. Those moving into the small company category can file abridged accounts and are exempt from filing a strategic report.

The government has also streamlined directors' report requirements by removing duplicate disclosures. Specifically, the following are no longer required:

• Disabled employees' policies: previously a mandatory disclosure for qualifying companies
• Financial instruments risk: removed as a standalone directors' report item
• Research and development expenses: no longer required in the directors' report
• Post-balance sheet events: removed from the directors' report disclosure list
• Employee engagement disclosures: no longer a mandatory directors' report item

All companies, including LLPs, dormant companies, and flat management companies, still need to file annual accounts with Companies House. And with further Companies House filing changes on the horizon, including mandatory software filing for all companies, now is a good time to ensure your processes are ready.

Guiding your clients through the changes

Start by reviewing your client base against the new thresholds. Identify which clients have moved into a smaller category and what that means for their specific reporting obligations.

Consider the following as you work through your client list:

• Segment clients by the new categories. Map each company against the updated turnover, balance sheet, and employee thresholds to confirm their classification.
• Assess audit exemption eligibility. For clients newly qualifying as small, check whether they meet all the conditions for exemption, including the shareholder and group rules.
• Evaluate whether reduced reporting is appropriate. Clients approaching the upper limits of their new category, or those seeking external investment, may be better served by maintaining fuller disclosures.
• Communicate the changes proactively. Let clients know how reclassification affects their obligations. An email update, a note in your regular meeting, or a short summary document all work well.
• Update your workflow and templates. Adjust your filing processes to reflect the correct accounts format and disclosure requirements for each client's new category.

Reliable recordkeeping across your client base makes this transition smoother. When reconciliations are up to date and you have access to accurate reporting, preparing annual accounts under a new category is straightforward. Xero Tax connects with Companies House, so you can retrieve company data and file accounts for FRS 102 1a abridged and full accounts as well as FRS 105. You can also prepare and file CT600 returns directly to HMRC from the same platform.

Simplify Companies House compliance with Xero

The updated thresholds should reduce the administrative load for many of your clients. Combined with the transitional provision, a significant number of companies can benefit from lighter reporting right away. The challenge for your practice is making sure every client is correctly classified and filing the right accounts.

Cloud-based accounting software helps you stay on top of these changes across your entire client base. With tools for automated reconciliation, real-time reporting, and direct Companies House filing, you can spend less time on compliance mechanics and more time advising clients on what the changes mean for their business.

Xero's partner programme gives your practice free access to Xero, along with dedicated support, Xero HQ for managing all your clients in one place, and tools like Xero Tax and Xero Practice Manager at higher tiers. Join the partner programme to see how it fits your practice.

FAQs on UK company size thresholds

Here are answers to frequently asked questions about UK company size thresholds and the 2025 changes.

When do the new UK company size thresholds take effect?

The updated thresholds apply to accounting periods beginning on or after 6 April 2025. If your client's financial year starts before that date, the previous thresholds still apply for that period.

What is the transitional provision for company size thresholds?

The transitional provision allows you to treat the new thresholds as if they were in force during the previous financial year. This means companies don't need to meet the two-year consecutive test before claiming the benefits of a smaller category, provided their current accounting period starts on or after 6 April 2025.

Do the new company size thresholds apply to LLPs?

Yes. The same turnover, balance sheet, and employee thresholds apply to limited liability partnerships. LLPs that now fall below the small company limits may qualify for simplified reporting and, in some cases, audit exemption.

How do group company thresholds work under the new rules?

Group thresholds are assessed on both an aggregate and a net basis, applying the same turnover, balance sheet, and employee limits. A parent company and its subsidiaries must meet at least two of the three conditions at group level. If the group qualifies as small, individual subsidiaries within it may also benefit from reduced reporting.

Can a company lose its audit exemption after qualifying?

Yes. If a company grows beyond the small company thresholds in a subsequent year, it will need to meet the two-year consecutive test again to maintain its smaller classification. Shareholders holding 10% or more can also demand an audit at any time, regardless of the company's size category.