Changes to UK company size thresholds and GAAP
The UK Government has announced a series of proposals aimed at reducing complexity and regulatory requirements for micro, small and medium sized entities.
What changes are being made?
The UK Government has recently announced changes that will:
- Increase the Companies Act 2006 financial size thresholds by approximately 50% to reflect historical and future inflation. This brings more companies into scope of simplified financial and narrative reporting requirements, and also increasing the number of businesses eligible for micro, small and audit exemptions.
- Streamlining reporting requirements by reducing duplication between the Strategic and Directors’ Report and removing a number of low value requirements from both the Directors’ and Remuneration Report.
These proposals are expected to come into force for accounting periods commencing 1 October 2024 and the resulting changes will be brought in through secondary legislation expected to be finalised in the coming months.
How does this interact with other financial reporting changes?
These changes come amid a broader suite of changes to accounting and filing requirements, including:
- Requirements for small and micro-entities to file more information, including a profit and loss account, and software-only accounts filing at Companies House – it is not yet clear whether all additional filed information will enter the public domain; and
- Revisions to UK Accounting Standards, including FRS 105 and FRS 102, finalised by the FRC on 27 March 2024, that come into effect for periods commencing on or after 1 January 2026.
What impact will the UK Accounting Standard Changes have?
Revisions to UK Accounting Standards will be relevant to all UK reporting entities with forward planning required in a number of areas. Significant changes include:
- Preparing for the impact of changes to lease accounting. This will have both balance sheet and profit impact for many businesses outside of the micros regime. Whilst the process is simpler than that seen in IFRS, it will represent a step-change in work effort for lessee accounting of leases previously held off-balance sheet. Practically, the impact on EBITDA and gearing can be relevant to the calculation of loan covenants, bonus payments and earn-outs
- Assessing the implications of a new 5 step model for revenue recognition. New revenue accounting requirements are being introduced. Whilst changes to accounting policies for many entities in this area are expected to be minimal, there will be a need to review existing revenue streams against the new process and some businesses may see significant implementation impact.
We are here to help
If you would like further information about how the amendments to UK GAAP, size thresholds, accounts filing and narrative reporting requirements might impact your business, please get in touch with your usual Azets advisor or a member of our specialist team.
