SME threshold change will cut accounting costs

SME threshold change will cut accounting costs

May 30, 2024

The government has launched a brief six-week consultation on plans to change the threshold size of SMEs and a limited removal of the requirement for a strategic report

The biggest change will see an amendment to the definition of a medium-sized company for corporate reporting so that the threshold for the maximum number of employees is increased from 250 to 500, aligning the employee threshold to a level that reflects what the government considers to be a medium-sized business.

This move is expected to save SMEs an estimated £145m due to deregulatory requirements.

A typical small company that takes advantages of the benefits of these changes could be expected to save around 10 hours of reporting and accountancy time a year, the Department for Business claimed.

Increasing the medium-sized company employee threshold from up to 250 to up to 500 employees will mean around 5,000 more large companies are categorised as medium-sized on top of the number re-classified with the 50% uplift in monetary criteria only.

For example, 5,000 large companies would be re-classified as medium and 14,000 medium companies would be re-classified as small.

A further 113,000 small companies would be reclassified as micro-sized companies which will allow them to file simpler accounts.

The other significant change is a new exemption from producing a strategic report, which will affect some medium-sized companies. In practice, this exemption would only apply to medium-sized private companies as public companies and public interest entities would not be able to use the exemption.

The proposals align with the commitment government made in October 2022, as part of the Better Regulation framework, to consider companies with up to 500 employees as SMEs when introducing new regulations.

The government said that ‘by broadening the population of medium-sized companies, the intention is to allow more companies to refocus their resources away from regulatory compliance and on to growth and economic output’.

The monetary limits have already been increased to an annual turnover of not more than £15m for small businesses and not more than £54m for medium businesses. Micros remain sub-£1m.

Kevin Hollinrake, business minister, said: ‘The changes focus on reducing regulation on small and medium-sized companies, ensuring that reporting requirements are proportionate so that those companies can focus on their growth and delivering for their customers.

‘These are proposals that the government intends to take forward in this parliament, subject to the views of stakeholders in response to this consultation. I welcome views and evidence from stakeholders to inform the government’s final decision on whether to proceed.

‘We know that there is a lot that can be done to simplify the reporting landscape for the largest companies too, and the government will bring forward ambitious proposals to do so in due course.’

The removal of the strategic report requirement would affect around 43,000 companies and save £150m in reporting costs, according to government estimates.