Labour drops plan to redefine size of SMEs

There will be no changes to employee thresholds for medium-sized companies as Labour rejects Conservative proposals to simplify reporting requirements.

The proposals are not being taken forward at this time but will be considered as part of the government’s broader non-financial reporting review.

The simpler corporate reporting consultation focused on changing the size definition of medium-sized companies.

These proposals included whether to raise the employee threshold determining company size from 250 to 500 employees for medium-sized companies and to exempt them from having to prepare a strategic report as part of the annual reports and accounts.

In a response to the consultation, the Department for Business confirmed the plans will not go ahead as envisaged, despite overwhelming support from respondents to the consultation, which was launched in May 2024 before the election was called in June. However, it is important to note that the level of response was quite low due to the calling of the election two weeks after the launch of the consultation.

Respondents felt that companies on the smaller end of the existing large threshold (251 to 500 employees) are disproportionately affected by the current thresholds, and do not have the same capacity or resources as the larger companies in the same bracket.

However, stakeholders called for the proposals to be introduced, or considered, as a part of a wider package of change and not in isolation. There were some concerns that measures implemented in isolation could further complicate the landscape.

Those against the proposals warned the change in rules could result in ‘a reduction in accountability and transparency’ and ‘risked poor corporate governance practices, particularly surrounding risk management’.

An SME respondent had welcomed the proposals, stating: ‘A company of 250 to 499 employees is usually not large enough, or with enough financial scale to provide full corporate-level reporting.

‘The demands of detailed strategic, risk and governance narrative and non-financial reporting are disproportionately greater than just financial statements reporting.

‘These other areas require deeper and broader skills, experience and resources so we agree that the threshold of 250+ employees should be increased to 500+ employees.’

The owner of a family business pointed to a lack of internal expertise at SMEs to handle the reporting, with less likelihood of staff equipped to deal with the reporting requirements unlike large businesses and multinationals. 

‘These businesses do not have large and complex management teams. They are extremely busy and have many draws on their time, having to be experts across many different topics.

‘Classing a business with 251 employees as a “large business”, and therefore bringing it in to the same reporting and regulation regimes as a business with 10,000 employees, does not reflect the reality of business life or resources.’

The government did not set out any timetable for any future review of reporting requirements.

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