Companies Act 2006 size limits increase confirmed

The new thresholds should be applied to the current and preceding years when calculating company or group sizes. When considering the impact of these changes, it is also important to remember that the 2024 periodic review of FRS 102 (see UK GAAP: preparing for change for further details) impacts entities for periods commencing on or after 1 January 2026, therefore it is possible that both sets of changes will need to be applied for the first time in the same reporting period.

Entities previously classed as medium who can now report as small will be entitled to reduced reporting and audit requirements, potentially saving significant costs and administrative burdens, as small entities are not required to have a statutory audit or produce a strategic report.

Additionally, those businesses who currently fall under the IR35 rules will need to consider whether they will be classed as small under the new thresholds, as this determines which party is responsible for determining whether IR35 applies.

The streamlined energy and carbon reporting (SECR) requirements do not depend on size under CA 2006 or the LLP regulations, and as such are not impacted by these changes, meaning that the SECR requirements will continue to be assessed as they always have been.

These adjustments are expected to streamline financial reporting and provide greater flexibility for companies of all sizes. It is vital that entities consider the impact of the size threshold increases, alongside the recognition and measurement changes resulting from the FRS 102 periodic review at an early stage. The FRS 102 changes to revenue recognition could impact an entity’s turnover, and the new lease accounting amendments are likely to increase total assets, so continually monitoring size and compliance with the associated reporting requirements will be key.

When will the size limits increase and periodic review changes impact my accounts?

The Companies Act threshold changes apply for accounting periods commencing on or after 6 April 2025, with the Periodic Review of FRS 102 amendments applying to accounting periods commencing on or after 1 January 2026. This results in the following key reporting dates:

For entities with a 31 March year end

• First set of accounts under new Companies Act thresholds = 1 April 2026 to 31 March 2027
• First set of accounts under Periodic Review 2024 = 1 April 2026 to 31 March 2027

Therefore 31 March 2027 accounts are the first set of accounts that apply both changes.

For entities with a 30 April year end

• First set of accounts under new Companies Act thresholds = 1 May 2025 to 30 April 2026
• First set of accounts under Periodic Review 2024 = 1 May 2026 to 30 April 2027

Therefore the new Companies Act threshold will apply a year before the Periodic Review changes are applied, however early adoption is available and could be considered if you wish to apply both changes to the same period.

For entities with a 31 December year end

• First set of accounts under new Companies Act thresholds = 1 Jan 2026 to 31 Dec 2026
• First set of accounts under Periodic Review 2024 = 1 Jan 2026 to 31 Dec 2026

Therefore 31 December 2026 accounts are the first set of accounts that apply both changes.

Simplified Directors Report requirements

There have also been adaptations made to the Directors’ Report to remove overlap with other reporting requirements and where they provide little material value to users of the accounts.

Following the changes, large and medium-sized entities no longer need to report on:

• financial instruments;
• important events that have occurred since the end of the financial year;
• likely future developments;
• research and development;
• branches outside the UK;
• the employment and training of disabled people (this requirement is also being removed for small entities with more than 250 employees); and
• engagement with employees; customers, suppliers and others.

Full details on all changes are available on the legislation government website, with an explanatory memorandum and impact assessment also available.

If you would like further information about how these changes might impact your business, please get in touch with Danielle Stewart OBE or your usual RSM contact.