Increased Reporting Requirements for Small Companies

Small companies will soon face greater reporting and disclosure obligations following significant updates to Financial Reporting Standard 102 (FRS 102), applying to accounting periods beginning on or after 1 January 2026.

Combined with wider Companies House reforms and the recent increase in the small company thresholds, more businesses may now qualify as “small” while also becoming subject to enhanced transparency requirements.

The updates apply to Section 1A of FRS 102, which sets out the reporting requirements for small entities.

What is changing?

Updates to Section 1A introduce expanded reporting obligations. These include additional requirements on transactions with directors and related parties, alongside changes relating to leases, revenue recognition, going concern and taxation.

At the same time, wider reforms are being introduced by Companies House under the Economic Crime and Corporate Transparency Act 2023. These include:

• Identity verification requirements;
• Proposed changes to filing obligations – including potential requirements for small companies to publicly file profit and loss accounts. Following comments made by Companies House representatives at Accountex 2026, further announcements on the timing and scope of these reforms are expected “very soon”. Companies House confirmed that the previously proposed April 2027 implementation date will no longer apply and that businesses will receive at least 21 months’ notice before any changes take effect; and
• The requirement for all companies to file their accounts digitally – implementation currently set for 1 April 2027.

Concerns have been raised regarding proposals to publicly file balance sheets and profit and loss figures, with Companies House stating that “the requirements will be set out in due course” following stakeholder feedback.

Taken together, these changes mean that while more companies may qualify as “small”, they are also facing increased disclosure and transparency requirements.

Greater transparency

One of the most notable changes is the expansion of related party disclosure requirements.

Previously, disclosures focused mainly on material transactions that were not conducted under normal market conditions. Under the revised rules, a much broader range of transactions may now require disclosure, including:

• Dividends;
• Directors’ remuneration;
• Loans; and
• Intercompany balances.

As a result, statutory accounts may provide significantly more information about how a business operates financially and how funds move between the company and connected parties.

Directors’ remuneration: what could become public?

By law, directors’ remuneration will only require specific disclosure where it is not considered to be at market value. This could arise, for example, where a director is paid significantly below the level expected for a comparable role.

However, determining “market value” will involve judgement and will depend on the circumstances of each business.

Where remuneration is considered below market value, it must be disclosed as a related party transaction. For small companies, this information will be publicly available when accounts are filed at Companies House.

Dividend disclosures increase visibility

Small companies will now need to disclose dividends paid or payable during the reporting period, increasing transparency around profit extraction.

Although detailed profit and loss information is not currently filed publicly by small companies, dividend disclosures may still allow users of the accounts to build a clearer picture of financial performance and, in some cases, infer profit after tax.

Expanded tax disclosures for small companies

The revised requirements introduce more detailed disclosures around taxation, including:

• Current tax expense or income;
• Adjustments relating to prior periods;
• Deferred tax arising from timing differences; and
• Deferred tax resulting from changes in tax rates or legislation.

This means statutory accounts will provide greater visibility of a company’s tax position than under the current framework.

While small companies can currently omit supporting profit and loss notes from Companies House filings, this is expected to change once new profit and loss filing requirements are introduced, currently anticipated no earlier than 2028.

Lease accounting becomes more complex

One of the most significant accounting changes relates to leases.

Under the revised rules, most leases will now need to be recognised on the balance sheet through the recognition of:

• A right-of-use asset; and
• A corresponding lease liability.

This removes the previous distinction between operating and finance leases for many entities.

Small companies will also be required to provide additional disclosures explaining their leasing arrangements, including descriptions of significant leases and key assumptions used within the calculations.

In practice, this is likely to increase both the level of judgement and the amount of work involved in preparing accounts. Each lease will need to be assessed individually, with businesses required to estimate lease terms, consider extension or termination options and apply an appropriate borrowing rate.

Should businesses reconsider their reporting framework?

The changes may lead some businesses to reconsider whether the small companies regime remains the most appropriate reporting framework.

Although more businesses may now qualify as small or micro entities due to the increased thresholds, the gap between the two regimes is widening.

Small companies face expanded disclosures in areas including related party transactions, dividends, directors’ remuneration, leases, taxation and going concern. In contrast, micro-entities applying FRS 105 continue to apply minimal disclosures on public record and a focus on historic cost.

For some businesses with straightforward operations, the micro-entities regime may be more proportionate. However, this must be balanced against the information needs of lenders, investors and other stakeholders.

How M+A Partners can help

Choosing between the micro-entities and small companies regime is not always straightforward, particularly as reporting requirements continue to evolve. We can help you determine the most appropriate framework for your business, taking into account size, growth plans, and the needs of lenders and other stakeholders.

We also support clients in preparing financial statements under both regimes, ensuring compliance with the latest requirements, including the FRS 102 Periodic Review 2024 amendments. Whether you are transitioning between regimes or need guidance on the increased disclosure requirements for small entities, our team can help you navigate the changes with confidence.

Further guidance available

M+A Partners has also produced detailed factsheets covering:

• New disclosure requirements for small companies in the UK; and
• The key differences between the micro-entities and small companies regimes.

Copies are available to download below.

For further information or advice, please contact your usual M+A Partners adviser or speak to one of our experts.