The strategic report

Every company that is not entitled to the small companies exemption must prepare a strategic report for each financial year under section 414A of the Companies Act 2006. It must give a fair review of the business and describe the principal risks and uncertainties the company faces. Medium sized companies can leave out non financial key performance indicators and the section 172(1) statement, while large companies must include that statement, and the largest companies with more than 500 employees must add non financial, sustainability and climate disclosures.

Which companies must prepare a strategic report?

Section 414A(1) places the duty on the directors of every company, and section 414A(2) removes it for a company entitled to the small companies exemption. Under section 414B a company is entitled to that exemption if it can prepare accounts under the small companies regime, or would be able to but for being a member of an ineligible group. So a small private subsidiary of a listed group is still exempt from the strategic report, even though it cannot use the small accounts regime.

In practice the report is needed by:

• every medium sized and large private company;
• every public company, because section 384 excludes public companies from the small companies regime whatever their size;
• companies excluded from the small regime for regulatory reasons, such as banking and authorised insurance companies.

A parent preparing group accounts must prepare a group strategic report covering the undertakings in the consolidation. Failing to prepare a required report is an offence by each director who did not take all reasonable steps to comply. The size tests are set out in company size thresholds.

What is the strategic report for?

Section 414C(1) states its purpose: to inform members and help them assess how the directors have performed their duty under section 172 to promote the success of the company. It was introduced by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (SI 2013/1970). The Financial Reporting Council publishes non mandatory Guidance on the Strategic Report, most recently revised in February 2026, which encourages companies to apply materiality and keep the report clear and concise. The director’s duty itself is explained in directors’ duties under the Companies Act.

What must every strategic report contain?

Section 414C(2) to (5) sets the core content:

• A fair review of the business. This must be a balanced and comprehensive analysis of the development and performance of the business during the year and its position at the year end, consistent with the size and complexity of the business.
• Principal risks and uncertainties. A description of the main risks facing the company, not a generic list.
• Key performance indicators. To the extent needed to understand the business, the review must use financial KPIs and, where appropriate, other KPIs including information on environmental and employee issues. KPIs are factors by which development, performance or position can be measured effectively.
• Links to the accounts. Under section 414C(12) the report must, where appropriate, refer to and explain amounts in the annual accounts.

Section 414C(11) lets directors move into the strategic report any directors’ report information they consider of strategic importance; the directors’ report must then say so (see what goes in a directors’ report). Section 414C(14) allows information about impending developments or deals still under negotiation to be withheld if, in the directors’ opinion, disclosure would be seriously prejudicial to the company’s interests.

What can a medium sized company leave out?

A company that qualifies as medium sized under sections 465 to 467 has three reliefs:

• its review need not include the non financial KPI analysis in section 414C(4) (section 414C(6));
• it does not need a section 172(1) statement (section 414CZA(2));
• it is outside the non financial and sustainability information statement (section 414CA(3)(b)).

It must still prepare the report and deliver it to Companies House with its accounts and directors’ report under section 445, and where the company is audited the auditor’s report delivered must cover it. The government consulted in 2024 on exempting medium sized companies from the strategic report, but that proposal is not law, so the duty continues.

What is the section 172(1) statement?

Large companies must include a statement describing how the directors have had regard to the factors in section 172(1)(a) to (f) when performing their duty to promote the company’s success. Those factors are:

1. the likely long term consequences of decisions;
2. the interests of employees;
3. the need to foster business relationships with suppliers, customers and others;
4. the impact of operations on the community and the environment;
5. the desirability of a reputation for high standards of business conduct;
6. the need to act fairly between members.

An unquoted company that must give the statement has to publish it on a website maintained by or for the company, free of charge, as soon as reasonably practicable, and keep it there until the next year’s statement replaces it (section 426B). Default is an offence by every officer in default, with a fine up to level 3 on the standard scale.

When are non financial, sustainability and climate disclosures required?

Section 414CA requires a non financial and sustainability information statement from companies that, at any time in the year, were traded companies, banking companies, authorised insurance companies, companies carrying on insurance market activity or companies with securities on AIM, and from high turnover companies with turnover above £500 million. In every case the requirement applies only if the company (or the group it heads) had more than 500 employees, and never to a small or medium sized company. A subsidiary can rely on a group statement by its parent that meets the conditions in section 414CA(8).

Under section 414CB the statement must contain climate related financial disclosures covering eight areas: governance; how climate risks and opportunities are identified, assessed and managed; how that is integrated into overall risk management; the principal risks and opportunities and the time periods used; their impact on the business model and strategy; resilience under different climate scenarios; targets and performance against them; and the KPIs used, with the calculations behind them. Directors may omit the last four where they reasonably believe them unnecessary for an understanding of the business, but must give a clear and reasoned explanation. The traded, banking, insurance and AIM categories must also report on environmental, employee, social, human rights and anti corruption issues, with their policies, outcomes and principal risks. Future sustainability reporting standards are covered in UK sustainability reporting standards.

What extra applies to quoted companies?

Under section 414C(7) and (8) a quoted company must also describe the main trends and factors likely to affect its future, information on environmental issues, employees and social, community and human rights issues (stating which of these it does not cover), its strategy and business model, and a breakdown by sex of directors, senior managers and employees at the year end.

How is it approved, and who is liable for it?

Section 414D requires board approval and signature on behalf of the board by a director or the secretary. Approving a non compliant report knowingly or recklessly is an offence. Under section 463 a director must compensate the company for loss caused by an untrue or misleading statement, or a dishonest omission, in the strategic report; there is no liability to outsiders who relied on it.

Illustration only. A private company with turnover of £30 million, a balance sheet total of £12 million and 120 employees is medium sized. Its strategic report reviews the year’s trading against budget, explains the movement in gross margin and borrowings with reference to the accounts, and describes three principal risks: dependence on two customers for 40% of sales, rising energy costs and a pending contract renewal. It uses revenue growth, gross margin and cash conversion as KPIs. It does not need non financial KPIs or a section 172(1) statement. If it grew to large, the section 172(1) statement would become mandatory, but the climate disclosures would still not apply unless it also had more than 500 employees and fell into one of the section 414CA categories.

What mistakes come up most often?

• Writing a generic risk list instead of the company’s own principal risks.
• Giving a review that covers only good news, when the law asks for a balanced analysis.
• Assuming a small subsidiary in an ineligible group needs a strategic report.
• A large unquoted company forgetting to publish its section 172(1) statement on a website.
• Repeating the directors’ report content without the paragraph 1A cross reference.

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Related Accountapedia entries

• The section 172 statement
• Climate related financial disclosures for companies
• Disclosure exemptions for medium sized companies
• LLP accounts: what must be filed
• When a parent company must prepare group accounts
• Director liability for the directors’ and strategic reports

Sources

• legislation.gov.uk: Act 2006 c. 46, section 414A
• legislation.gov.uk: Act 2006 c. 46, section 414B
• legislation.gov.uk: Act 2006 c. 46, section 384
• legislation.gov.uk: Act 2006 c. 46, section 414C
• legislation.gov.uk: Act 2006 c. 46, section 414CZA
• legislation.gov.uk: Act 2006 c. 46, section 172
• legislation.gov.uk: Act 2006 c. 46, section 426B
• legislation.gov.uk: Act 2006 c. 46, section 414CA
• legislation.gov.uk: Act 2006 c. 46, section 414CB
• legislation.gov.uk: Act 2006 c. 46, section 414D

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.