Navigating compliance with Section 474: Size, nature of business, and group considerations

published on 16 June 2025 | reading time approx. 2 minutes

As we highlighted in our April 2025 article, proposed updates to the UK’s company size thresholds were the first step in a broader effort to modernise corporate reporting and lighten the compliance burden for smaller businesses. These proposals have now been enacted through the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, which came into force on 6 April 2025, increasing the thresholds for micro-, small-, and medium-sized entities. This means that many companies may now qualify for simplified reporting regimes, but compliance under Section 474 still depends on correctly assessing company size, nature of business, and any group or trading company status.

Updated size thresholds (effective 6 April 2025)

New thresholds reflect inflationary adjustments and reduce reporting burdens

Category	Turnover ≤	Balance Sheet ≤	Employees ≤
Micro	£1 m	£500 k	10
Small	£15 m	£7.5 m	50
Medium	£54 m	£27 m	250
Large	Above medium thresholds

Group thresholds are higher—e.g. small groups: turnover ≤ £18 m, balance sheet ≤ £9 m, employees ≤ 50; medium groups: turnover ≤ £64 m, assets ≤ £32 m, employees ≤ 250.

The “two year rule” still applies, and transitional provisions allow companies to apply the new thresholds for current and prior years immediately.

Nature of business & ineligibility

Even if a company meets size criteria, certain businesses are ineligible for the micro, small, or medium regimes. These include:

Public companies (PLCs)
Banks and insurers
Companies with shares traded on public markets (including AIM)
Public interest entities (e.g. listed or regulated firms)

Such companies must prepare full accounts, regardless of size.

Group considerations

Group membership can disqualify a parent or subsidiary from size-based relief:

Being part of an “ineligible group” excludes you from simplified regimes
Account consolidation matters: group thresholds (net or gross) are applied for classification
Share trading within the group (including AIM) renders the entire group ineligible for micro/small classification

Implications for Section 474 compliance

Adequate records must support:

Accurate tracking of turnover, assets, and employees throughout the year
Size determination at the balance sheet date, factoring in group aggregation and business type
Appropriate financial statements, aligned with the company's size/nature/group status:
- Micro entities: simplest disclosures (no Director’s Report)
- Small companies: simplified disclosures and audit exemption (if eligible)
- Medium companies: reduced strategic report requirements but still audited
- Large or ineligible companies: full disclosures and statutory audit

Failing to align records with this analysis can lead to non-compliant accounts, missed audit exemptions, or penalties from Companies House and HMRC.

Practical steps for directors

Track thresholds quarterly, including group adjustments.
Segment and monitor transactions to evidence size and type compliance.
Evaluate group eligibility, especially if part of a parent company or trading shares.
Document your size classification, year by year, to support audit exemption claims.
Update accounting policies if adopting new reporting frameworks (e.g., FRS 105, FRS 102 or full IFRS for large entities).

How we support you

At Rödl & Partner, we offer:

Threshold and group status assessments to confirm eligibility for simplified regimes
Accounting system design and record keeping support tailored to size and group structure
Year end sign off to ensure Section 474 compliance supports your filed accounts
Ongoing advisory, updating clients when thresholds or regulations change