The UK Government has recently announced changes that will:
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Increase Financial Size Thresholds:
The Companies Act 2006 financial size thresholds will be increased by approximately 50% to account for historical and future inflation. This change will bring more companies under the scope of simplified financial and narrative reporting requirements, and increase the number of businesses eligible for micro, small, and audit exemptions.
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Streamline Reporting Requirements:
Reporting requirements will be streamlined by reducing duplication between the Strategic and Directors’ Report and removing several low-value requirements from both the Directors’ and Remuneration Reports.
These proposals are expected to take effect for accounting periods commencing on or after 1 October 2024, with changes being implemented through secondary legislation to be finalised in the coming months.
Interaction with Other Financial Reporting Changes
These changes are part of a broader set of modifications to accounting and filing requirements, including:
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Additional Filing Requirements:
There are several factors that could alter the proposed changes, including the legislative process, government consultation outcomes, and the next general election. Notably, the government does not plan to include these changes in this year’s Finance Bill, so the final position remains uncertain.
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Revisions to UK Accounting Standards:
Changes to UK Accounting Standards, including FRS 105 and FRS 102, were finalised by the FRC on 27 March 2024 and will take effect for periods commencing on or after 1 January 2026.
Impact of UK Accounting Standard Changes
Revisions to UK Accounting Standards will affect all UK reporting entities, necessitating forward planning in several areas. Significant changes include:
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Lease Accounting Changes:
The new lease accounting standards will impact both the balance sheet and profit for many businesses outside the micro-entity regime. Although the process is simpler than IFRS, it will represent a significant increase in work effort for lessee accounting of leases previously held off-balance sheet. The impact on EBITDA and gearing could be relevant for calculating loan covenants, bonus payments, and earn-outs.
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New Revenue Recognition Model:
A new 5-step model for revenue recognition is being introduced. While many entities are expected to see minimal changes to their accounting policies, there will be a need to review existing revenue streams against the new process, and some businesses may face significant implementation impacts.
We Are Here to Help
- For more information about how the amendments to UK GAAP, size thresholds, accounts filing, and narrative reporting requirements might impact your business, please contact your VPC advisor or a member of our specialist team.
