26 March 2024 Judy Pink Corporate Governance

UK Government confirms plans to increase company size thresholds and reduce company reporting

A written ministerial statement confirms the Government's intention to lay legislation this summer to lift the monetary thresholds that determine company size and, later this year, to consult on further changes to the corporate reporting requirements for medium-sized companies.

In addition, the Department for Business & Trade has published a summary of responses to its May 2023 call for evidence on the non-financial information UK companies are required to include in their annual reports.

Increase of company size thresholds and removal of duplicative reporting requirements

The Government plans to lay legislation this summer to lift the monetary thresholds that determine company size by 50%. A table setting out the current and proposed new thresholds is set out in the ministerial statement.

The legislation will also:

  • remove several obsolete or overlapping requirements from the directors' report and from the directors' remuneration report and policy;
  • make it easier for companies to issue digital annual reports; and
  • fix some technical issues in the audit regulatory framework that have been identified following the assimilation of EU law into UK law.

Consultation on corporate reporting requirements for medium-sized companies

The Government intends to consult later this year on exempting medium-sized companies from the requirement to produce a strategic report. It will also propose:

  • a further amendment to the definition of a medium-sized company, increasing the maximum threshold for employees from 250 to 500; and
  • exempting smaller public interest entities from audit tendering and rotation requirements.

Summary of responses to May 2023 call for evidence

The DBT has published the responses received to its May 2023 call for evidence and a summary of the main findings. These include the following:

  • Non-financial reporting is believed to have value. A significant number of respondents (over 80%) either strongly agreed or agreed that the NFR prepared by companies was useful, because it increased transparency and enabled a degree of accountability.
  • Businesses consider NFR costs to be too high, but users consider the cost to be worthwhile. Most preparers of accounts reported that the costs of NFR outweighed the benefits (52%), but three quarters of other respondents – including investors – believed the benefits matched or exceeded its costs.
  • NFR complexity is a problem. Current reporting thresholds, exemptions and exclusions are too complex and would benefit from simplification.
  • Too many smaller firms have been drawn into excessive NFR. The majority of respondents (59%) who answered the question thought that the micro-entity, small, medium-sized and large company reporting thresholds no longer remained appropriate.
  • Respondents expressed strong support for greater comparability in sustainability related reporting and the UK's pursuit of International Sustainability Standards Board standards as a solution to issues caused by reporting against a variety of standards.
  • Respondents suggested that the directors' report should be streamlined or abolished altogether.
  • The Government received feedback that the directors' remuneration report could be streamlined, although there were no specific suggestions on how this might best be achieved.

Next steps

As part of the next phase of the review, the Government will publish legislation this summer to lift the monetary thresholds that determine company size and to remove duplicative reporting requirements. A consultation on further changes to the corporate reporting requirements for medium-sized companies is expected later this year.