£10.2m to £15m Uplift: Small Company Thresholds UK and How to Qualify
As of accounting periods beginning on or after 6 April 2025, the UK monetary thresholds have increased: a company is small if it meets at least two of turnover no more than £15 million, balance-sheet total no more than £7.5 million and an average of no more than 50 employees. The change applies from that date, with a transitional rule letting some companies apply it a year early.
TL;DR:
Companies can now qualify as small if they meet at least two of the three thresholds: £15 million turnover, £7.5 million balance-sheet total, and 50 employees, starting April 2025.
The two-year rule requires companies to meet the size criteria in both the current and the previous year unless the transitional provision applies, allowing higher thresholds to count immediately.
Group assessments can use either gross or net figures for turnover and assets, with the choice affecting whether a group qualifies as small; subsidiaries can be excluded or included based on group status.
Audit exemption criteria are separate from small company status and disqualify companies in regulated sectors, public companies, or where shareholders request audits, regardless of size.
Accurate size classification depends on timely calculations of two previous years’ data, accounting for period adjustments, statutory exclusions, and proper use of the transitional rules.
Table of Contents
Quick reference: thresholds for micro, small and medium companies
Who qualifies as a small company: the two-of-three test and the two-year rule
Audit exemption versus small-company reporting: what directors should know
Group and LLP rules: net or gross, and parity for partnerships
Transitional rules and the practical impact of the 2025 uplift
Step-by-step checklist and worked examples to determine small-company status
How Keystone Financial Advisory can help with eligibility checks and accounts
Why the threshold change matters more than most directors assume
Quick reference: thresholds for micro, small and medium companies
The starting point for any small company thresholds UK question is the numeric test itself. Companies House measures three things: turnover, balance-sheet total and average number of employees. A company qualifies for a size category when it meets at least two of the three limits for that category, and the balance-sheet total means total assets before deducting liabilities, not net assets.
The figures rose substantially under SI 2024/1303, which increases the monetary thresholds in the Companies Act for micro, small and medium-sized companies with effect for periods beginning on or after 6 April 2025. The instrument raised small company turnover from £10.2 million to £15 million and balance-sheet total from £5.1 million to £7.5 million, among other changes.
Category | Turnover | Balance-sheet total | Average employees |
Micro-entity (from 6 April 2025) | Not more than the specified turnover threshold | Not more than the specified balance-sheet total threshold | Not more than the specified employee limit |
Small (from 6 April 2025) | Not more than £15 million | Not more than £7.5 million | Not more than 50 |
Medium (from 6 April 2025) | Not more than the monetary turnover threshold | Not more than the monetary balance-sheet total threshold | Not more than the employee threshold |
Small (periods before 6 April 2025) | Not more than £10.2 million | Not more than £5.1 million | Not more than 50 |
The employee limit stayed put at 50 for small companies while the money moved, which tells you where the reform was really aimed: fewer companies forced into medium or large reporting purely because turnover crept up with inflation.
If your accounting period runs for more or less than 12 months, the turnover figure is not taken at face value. You need to adjust it proportionately, so a nine-month period compares against nine-twelfths of the annual threshold rather than the full £15 million. Balance-sheet total and employee averages are not adjusted this way because they are point-in-time or average figures rather than cumulative ones.
Groups and LLPs sit inside the same framework but with a twist. A parent company assessing group size can choose to test the aggregate turnover and balance-sheet total either gross (adding up each subsidiary’s figures before consolidation adjustments) or net (after consolidation adjustments), and can pick whichever produces the better result. LLPs are covered by equivalent amendments so the same pound figures and employee count apply to them for periods beginning on or after 6 April 2025.
Who qualifies as a small company: the two-of-three test and the two-year rule
Meeting the numbers once is not, on its own, enough. Companies House applies a qualifying process that looks at more than a single year’s snapshot, and getting this wrong is one of the most common mistakes directors make when choosing a reporting regime.
First year of trading: a company qualifies as small in its first financial year simply by meeting at least two of the three limits in that year, with no prior year to compare against.
Subsequent years: from the second year onwards, a company must meet at least two of the three limits in that year and in the year before it, unless it qualified in the prior year using the transitional provision described below.
Losing small status: a company that fails the test in two consecutive years loses small status from the second of those years, so one bad year alone does not knock a company out of the regime.
Gaining small status: conversely, a company must pass the test in two consecutive years before it can move into the small regime after previously being classed as medium or large.
The most common pitfall is treating turnover as the deciding factor and ignoring the other two limits. A software company with turnover well under £15 million but a large balance sheet from capitalised development costs or investments can still fail the size test if it exceeds the balance-sheet total and employee limits at the same time, since only two of the three need to be breached to disqualify it, not all three.
The transitional provision in SI 2024/1303 softens the two-year rule for the changeover period. For a financial year beginning on or after 6 April 2025, a company is allowed to treat the new, higher thresholds as if they had also applied in the immediately preceding financial year, purely for the purpose of the qualifying test. This means a company that would have failed the two-year test under the old £10.2 million turnover limit but passes under the new £15 million limit for both years can move straight into the small regime without waiting an extra year.
ICAEW guidance stresses that the threshold increase interacts with the two-year rule in ways that catch preparers out, particularly where a company’s accounting-period start date sits close to 6 April 2025. Getting the qualifying year wrong can mean preparing a full set of accounts when a simpler regime was available, or worse, claiming a simplified regime the company was not yet entitled to use.
Pro Tip: Pull your prior two years’ turnover, balance-sheet total and average employee figures before you touch this year’s accounts. The two-year rule means last year’s numbers decide this year’s regime as much as this year’s do.
Audit exemption versus small-company reporting: what directors should know
Small company status and audit exemption are governed by the same numeric test but they are legally separate decisions, and conflating them is one of the more expensive mistakes a growing business can make. The audit-exemption test for financial years beginning on or after 6 April 2025 asks the same two-of-three question: turnover no more than £15 million, assets no more than £7.5 million, and no more than 50 average employees. Passing that test qualifies a company for the small-company reporting regime, but audit exemption also depends on separate legal conditions and a list of exclusions that has nothing to do with turnover or headcount.
Public companies, whether listed or not, cannot claim audit exemption regardless of size.
Companies operating in regulated financial sectors, including banks and insurance undertakings, are excluded under sections 384 and 467 of the Companies Act 2006.
A company cannot claim exemption if members holding at least 10% of shares (or a class of shares) formally request an audit for that year.
Companies whose articles of association or loan agreements require an audit remain bound by those private arrangements even if they meet the statutory exemption test.
A subsidiary within a group generally needs a parent guarantee under section 479A of the Companies Act 2006 to claim exemption, rather than relying on its own figures alone.
Practitioners should treat the reporting classification and the audit-exemption decision as two separate questions even though they share a numeric test, because the exclusions and statutory conditions attached to audit exemption do not apply to small-company reporting at all. A company can be entitled to prepare small-company accounts while still being legally required to have those accounts audited, for example if its shareholders have requested one.
Where a company does qualify, the directors must include a specific statement above the balance sheet confirming the company is entitled to exemption under the relevant section of the Companies Act and that no member has required an audit. Missing or incorrectly worded exemption statements are a frequent cause of accounts being queried or rejected, so this is not a box-ticking formality.
Group and LLP rules: net or gross, and parity for partnerships
Group structures complicate an otherwise straightforward test, largely because a parent company has some choice in how it measures itself.
A parent assessing whether its group qualifies as small can use either the gross figures (the sum of turnover and balance-sheet totals across all group companies before consolidation adjustments) or the net figures (the consolidated totals after those adjustments), whichever gives the more favourable result.
The gross thresholds are set at a higher level than the net thresholds specifically because gross figures tend to overstate group size before intercompany eliminations, so the two sets of limits are not identical numbers.
Whether to elect net or gross treatment is a genuine strategic choice: a parent close to the borderline should model both options rather than assuming the consolidated figure is the only one that matters.
LLPs sit under equivalent guidance confirming that the same thresholds apply to limited liability partnerships for accounting periods beginning on or after 6 April 2025, with the same turnover, balance-sheet and membership-count logic as companies.
A subsidiary that would otherwise qualify as small in its own right may still be pulled into the medium or large regime if the group it belongs to does not qualify as small overall.
Parent companies need to run the size test twice: once for the individual company and once for the group as a whole, because passing at company level does not guarantee passing at group level. This is where the net/gross election tends to matter most, since a group hovering close to the thresholds on a net basis may still pass comfortably on a gross basis, or vice versa depending on intercompany trading.
Transitional rules and the practical impact of the 2025 uplift
The transitional provision attached to SI 2024/1303 exists to stop the two-year rule delaying access to the new regime by an extra year. For a financial year beginning on or after 6 April 2025, a company can treat the new thresholds as if they had applied in the previous financial year too, purely for qualifying purposes. Without this rule, a company that only passes the new limits from 2025 onwards would need to wait until its second qualifying year, typically 2026, before it could use the small regime.
The explanatory memorandum to SI 2024/1303 indicates the uplift was intended to move a meaningful number of companies into simpler reporting regimes, and confirms that LLPs are brought into the change through corresponding amendments rather than being left on the old figures. That intent matters when reading the numbers: the government’s aim was fewer companies preparing medium or large-company accounts, not a technical adjustment for its own sake.
In practice, three things follow for directors and accountants working through 2026 accounts. Some companies previously classed as medium, particularly those with turnover in the £10 million to £15 million range, now qualify as small and can move to a filleted or abridged format. Others that were small but close to the old audit-exemption ceiling now have more headroom before an audit becomes compulsory on size grounds alone. Neither change removes the exclusions covering regulated entities, group constraints or shareholder-requested audits, so a size review is the first step, not the last.
Step-by-step checklist and worked examples to determine small-company status
Before you can classify a company, you need four pieces of information sitting in front of you: this year’s turnover, this year’s balance-sheet total at the period end, the average number of employees across the year, and the same three figures for the prior financial year. If the company sits in a group, you also need the equivalent figures for the group as a whole, both gross and net.
Gather the figures. Pull turnover, total assets before liabilities, and average headcount for the current period and the prior period from management accounts or the previous year’s filed accounts.
Adjust for a short or long period. If the current accounting period is not exactly 12 months, scale the turnover threshold proportionately rather than adjusting the reported turnover itself.
Apply the two-of-three test to each year. Check which two (or three) of the limits are met in the current year, then repeat for the prior year using the thresholds that applied at the time, or the new thresholds if the transitional provision applies.
Check group position if relevant. Where the company is a parent or subsidiary, run the same test at group level using both net and gross figures and take whichever result is more favourable.
Confirm you are not excluded. Cross-check the company against the statutory exclusions before assuming small-company treatment, since size alone does not override sector-based exclusions.
Decide the reporting format and, separately, the audit question. Small-company status determines the accounts format; the audit-exemption conditions and exclusions are assessed separately even though the numeric test is the same.
Worked example, single company: say a company had turnover of £13 million, a balance-sheet total of £6.8 million and an average of 42 employees in its financial year beginning 1 July 2025. All three figures sit below the small thresholds of £15 million, £7.5 million and 50 employees, so it passes comfortably on all three limits rather than needing just two. If its prior year also met at least two of the old thresholds (£10.2 million turnover, £5.1 million balance-sheet total, 50 employees), or if the transitional provision applies to treat the new limits as having applied that year too, the company qualifies as small for both years and can use the small regime immediately.
Worked example, parent and subsidiary: say a parent company has standalone turnover of £4 million, and its one subsidiary has turnover of £9 million, giving gross group turnover of £13 million. After eliminating £2 million of intercompany sales on consolidation, net group turnover is £11 million. Both figures sit under the £15 million small-group turnover ceiling, so the election between net and gross makes no difference here, but if the subsidiary’s turnover had instead been £14 million, the gross figure of £18 million would fail the small-group test while the net figure after elimination might still pass, making the net election the only route to small-group status.
Pro Tip: Keep a one-page working paper for every accounting period showing the two-of-three calculation for both the current and prior year. It becomes the first thing an accountant or a Companies House query will ask for.
Companies House publishes guidance and worked examples alongside the official accounts filing rules, and this is the right first stop for checking the current wording of any limit before you file. Keeping dated working papers also matters because thresholds change again over time, and you want to be able to show which rule applied when.
How Keystone Financial Advisory can help with eligibility checks and accounts
Working out whether your company genuinely qualifies as small, and whether that also means audit exemption, is exactly the kind of calculation that benefits from a second pair of eyes, particularly around a threshold change. Keystone Financial Advisory supports founders and growing UK businesses with accounts preparation and year-end reporting, audit readiness checks, company set up and confirmation statements, and tax planning and returns, alongside day-to-day bookkeeping, VAT filing and payroll management.
It is worth talking to an adviser specifically when you are unsure how the two-year rule applies to your accounting period, when your company sits inside a group and the net or gross election is not obvious, or when you are close to the audit-exemption boundary and want to check the exclusions before assuming exemption applies. Getting this wrong in either direction, preparing more disclosure than necessary or claiming an exemption you are not entitled to, tends to cost more to fix later than it would have cost to check upfront.
The firm’s team includes professionals with backgrounds at larger UK and Middle East firms, applied here to the compliance questions that founders and small business owners face day to day. For further reading on related filing and compliance topics, Keystone’s blog covers VAT registration, statutory accounts preparation and the shift to software-only filing at Companies House.
— Shoaib
Why the threshold change matters more than most directors assume
The 2025 uplift gets treated as a technical footnote by a lot of small business owners, something for the accountant to worry about. That is a mistake. A company moving from medium to small status is not just filing a slightly shorter document, it is changing what its lenders, suppliers and potential buyers can see about its financial position, since small and micro-entity accounts disclose far less than medium-company accounts do.
The conventional advice, check your turnover against the new limit and move on, misses the two-year rule and the group net/gross election almost every time. Those two mechanics decide more borderline cases than the headline £15 million figure ever will. If you take one thing from this, prioritise the two-year comparison and the transitional provision before you touch the accounts format, because getting the qualifying year wrong is the single most common and most avoidable error in this area.
— Shoaib
Get a size-check review before your next accounts deadline
Working out your small company thresholds UK position is only useful if it happens before the accounts are prepared, not after. Have your latest two years of turnover, balance-sheet total and average headcount figures ready, along with group accounts if you have a subsidiary or a parent company, and a Keystone adviser can run the two-of-three test and the audit-exemption check alongside it in one sitting.
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A first meeting typically covers the same ground every size-check needs: confirming which accounting period and prior-year figures apply, checking whether the transitional provision helps your case, and flagging any statutory exclusions before you assume small-company treatment.
What you need ready | Why it matters |
Latest two years’ turnover figures | Required for the two-year qualifying test |
Balance-sheet total (total assets) at each period end | One of the three limits in the two-of-three test |
Average employee count for each year | The third limit, often overlooked |
Group accounts if applicable | Needed for the net/gross group election |
Keystone Financial Advisory offers Flexible Accounting Services That Grow With You from £99 to £199 per month, alongside accounts preparation, audit readiness checks and confirmation statement filing priced on request. Get in touch through Keystone’s services page to book a review ahead of your next filing deadline.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
Sources
FAQ
What are the audit thresholds for small companies in 2026?
For financial years beginning on or after 6 April 2025, and continuing into 2026 filings, the audit-exemption test requires meeting at least two of: turnover no more than £15 million, assets no more than £7.5 million, and no more than 50 average employees. Meeting the numbers is necessary but not sufficient, since separate exclusions apply to regulated firms, public companies and cases where shareholders have requested an audit.
What is considered a small company in the UK?
A UK company is small when it meets at least two of three limits for accounting periods starting on or after 6 April 2025: turnover no more than £15 million, balance-sheet total no more than £7.5 million, and an average of no more than 50 employees. It must also satisfy this test in two consecutive years, unless it is in its first financial year or covered by the transitional provision.
What is the two-year rule for company size in the UK?
The two-year rule means a company generally has to meet the two-of-three size test in a given year and the year immediately before it before that classification takes effect, so one qualifying year alone is not usually enough. A transitional provision attached to SI 2024/1303 allows companies to treat the new, higher thresholds as having applied in the prior year too, for periods beginning on or after 6 April 2025.
What are the criteria for a small company?
The criteria are the same three figures used throughout this article: turnover, balance-sheet total and average employees, with small status requiring at least two of the three limits to be met at £15 million turnover, £7.5 million balance-sheet total and 50 employees. Groups apply the same test at consolidated level, with a choice between net and gross figures, and certain regulated or public companies are excluded regardless of size.
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