Ask a UK practice owner what has dominated 2026 and you will hear about quarterly updates, Companies House identity checks and the Budget on the 28th of October. Meanwhile, a change that quietly reshapes a large slice of accounts production work is about to land in your December files.
The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 lifted the monetary size thresholds for micro, small and medium-sized entities for financial years beginning on or after the 6th of April 2025. For most practices, that means the first affected accounts are March 2026 31st and December 31st 2026 year ends. The 31st of December 2026 files are the ones you are about to start planning. If nobody in your firm has run a reclassification review across the client list, you are about to do it client by client, under time pressure, in the same weeks as self assessment season.
A company meets a size category if it satisfies two of the three criteria. The monetary limits rose by roughly 50 per cent, while the employee counts stayed the same.
The same uplift flows through to LLPs, and critically to audit exemption. Companies House guidance now sets small company audit exemption at turnover of no more than £15m, assets of no more than £7.5m and 50 or fewer employees, on the usual two out of three basis.
The government expects around 113,000 entities to move from small to micro, 14,000 from medium to small, and roughly 5,000 to 6,000 from large to medium. In a typical general practice portfolio of a few hundred limited companies, that is not an abstract statistic. It is a handful of audits that disappear and a long tail of clients who can file less.
Size is normally tested over two consecutive financial years, which would have delayed the benefit. The regulations include a transitional provision: when determining size for a financial year beginning on or after the 6th of April 2025, you may assume the new thresholds applied in the previous financial year as well.
In practice, a client with a December 31st 2026 year end can apply the new thresholds to both 2026 and 2025 for the purposes of the two-year rule. So the reclassification is available now, not in 2028. Equally important, the changes cannot be adopted early, so a period beginning before the 6th of April 2025 stays on the old rules no matter how tempting the comparison looks.
There is also a separate simplification that applies to companies of all sizes for periods beginning on or after the 6th of April 2025. Several directors' report disclosures have been removed, including the use of financial instruments, important events since the year end, likely future developments, research and development activities, the existence of branches outside the UK, the employment and advancement of disabled persons, and engagement with employees, suppliers and customers. If your accounts production templates and review checklists still prompt for all of those, they are now out of date.
Reclassification is not happening in isolation. The FRS 102 periodic review applies to periods beginning on or after the 1st of January 2026, bringing new lease and revenue requirements and revised Section 1A disclosure. Separately, Companies House is overhauling accounts filing, with software-only submission and profit and loss information for small and micro companies on the way. A client moving from full FRS 102 to Section 1A, or from Section 1A to FRS 105, in the same cycle as a framework change and a filing channel change, needs that mapped once and documented properly rather than resolved three times in a reviewer's margin notes.
For firms with a small audit department, the uplift is a quiet revenue event. Audits that were a reliable annual block of recoverable time simply stop being compulsory. The firms that handle this well are not the ones that cling on by persuading clients to keep a voluntary audit. They are the ones that spot the change early, reposition the work as advisory or assurance, and redeploy audit-trained staff onto higher value engagements at a time when experienced people are extremely hard to recruit.
The firms that handle it badly will discover the change in February, in an email from a client who has just been told by someone else that they no longer need an audit.
The hardest part of this exercise is not the technical test, it is getting reliable comparative figures across a whole portfolio quickly. If your accounts production and practice management data sit in one place, the reclassification review becomes a reporting exercise and a client communication exercise rather than a file by file investigation. TaxCalc customers can pull prior year figures from Accounts Production and manage the resulting client conversations, deadlines and task ownership centrally, which keeps a strategic review from turning into 300 individual to-do items.
The thresholds moved in April 2025, but the consequences arrive in the accounts you are about to prepare. December 2026 year ends are the moment the uplift becomes real for most practices, and the transitional two-year rule means the benefit is available immediately. Spend half a day now identifying which clients change category, and you convert an administrative surprise into a set of welcome client conversations. Leave it, and it becomes January's problem, in the one month where you have no spare capacity at all.