The revised monetary limits apply for financial years beginning on or after 6 April 2025. The employee limits did not change. The August 2026 update provides a useful comparison table showing the revised micro, small and medium thresholds. Current Companies House guidance confirms the operative thresholds.
That can affect more than the label attached to a company. Classification influences available reporting regimes and, for qualifying small companies, can affect eligibility for statutory audit exemption.
What are the new UK company size thresholds?
For accounting periods beginning on or after 6 April 2025:
| Company category | Turnover | Balance-sheet total | Average employees |
|---|---|---|---|
| Micro | £1m or less | £500,000 or less | 10 or fewer |
| Small | £15m or less | £7.5m or less | 50 or fewer |
| Medium | £54m or less | £27m or less | 250 or fewer |
A company generally needs to satisfy at least two of the three conditions for the relevant classification. Current Companies House guidance confirms £15m/£7.5m/50 for small companies and £54m/£27m/250 for medium-sized companies.
The micro limits are £1m turnover, £500,000 balance-sheet total and 10 employees.
These thresholds should not be confused with every other statutory use of the expressions “small” or “large”. Different legislation can deliberately retain different tests.
The two-out-of-three rule still matters
A company does not become large simply because its turnover exceeds the medium-company turnover threshold.
Classification depends on the combination of turnover, balance-sheet total and average employees.
For example, a company with £60m turnover, £20m total assets and 120 employees exceeds the medium turnover condition but remains within the other two medium conditions. Subject to the other statutory rules, it can therefore still satisfy two of the three medium criteria.
This is why simply checking turnover is not enough.
The same logic applies at the small-company boundary.
Do you have to qualify for two years?
Outside the first financial year, company-size classification generally operates through a two-year mechanism.
Companies House explains that a company normally needs to meet the qualifying conditions in the current and preceding year, while a company that was previously within a category can ordinarily retain that classification for one year after it first fails the conditions.
Importantly, the amending legislation included a transitional provision designed to allow the revised monetary limits to be treated as if they had applied when looking back at previous years. The course material specifically highlights this transitional effect.
That means businesses should not simply take last year's classification and roll it forward.
How do the thresholds affect audit exemption?
The change can bring additional private companies within the small-company size test.
For financial years beginning on or after 6 April 2025, GOV.UK states that a private company may qualify for audit exemption if it satisfies at least two of:
- turnover no more than £15m
- assets no more than £7.5m; and
- 50 or fewer employees on average.
The word “may” matters.
Being small does not mean an audit exemption is automatically available in every situation. Certain companies are ineligible; group circumstances matter; a company's articles may require an audit; and qualifying shareholders can require one.
A business should therefore perform two separate steps:
Step 1: determine whether the company qualifies as small.
Step 2: determine whether a statutory audit exemption is actually available.
That distinction avoids a common shortcut: “We are below £15m turnover, therefore we do not need an audit.”
Neither half of that statement is sufficient on its own.
Group thresholds need separate assessment
Parent companies need to consider the group classification rules as well as their own individual size.
For accounting periods beginning on or after 6 April 2025, a small group must meet two of the relevant criteria, including aggregate turnover of no more than £15m net or £18m gross and aggregate balance-sheet total of no more than £7.5m net or £9m gross, with no more than 50 employees.
For a medium-sized group the corresponding limits are £54m net or £64m gross turnover, £27m net or £32m gross balance-sheet total and 250 employees.
For groups close to a boundary, the difference between gross and net measurement should therefore be understood rather than selecting whichever number is easiest to extract.
Group eligibility is also important when considering audit and consolidation exemptions.
Why the FRS 102 lease changes make the threshold exercise more interesting
There is a particularly timely interaction for 2026.
Revised FRS 102 Section 20 generally brings substantially more leases onto lessees' balance sheets. The FRC expects many preparers to report higher assets and liabilities as a consequence.
Companies House describes the balance-sheet criterion in terms of the company's total assets.
A company close to a size threshold should therefore model the effect of its 2026 lease transition when assessing the balance-sheet total rather than using the previous year's asset base mechanically.
The increased statutory thresholds may move some companies down a size category while the new lease accounting can move their reported asset base in the opposite direction.
The correct conclusion depends on the actual figures.
Classification affects more than audit
Company size can influence:
- the statutory accounts regime available
- disclosure requirements
- strategic and directors' reporting requirements
- whether certain filing simplifications can be used
- eligibility for audit exemption; and
- group reporting obligations.
The consequences should be mapped individually because not every reporting requirement uses precisely the same size definition.
The narrative-reporting summary table in the training material illustrates that different reporting obligations attach differently to micro, small, medium and large businesses rather than simply increasing in one uniform step.
A particular warning: “large” does not always mean the same thing
A good example is the Economic Crime and Corporate Transparency Act's failure-to-prevent-fraud offence.
For that offence, a large organisation is tested against more than £36m turnover, more than £18m total assets and more than 250 employees, with two of the three criteria required.
Those are not the current Companies Act medium-company thresholds.
It would therefore be incorrect to conclude that a company falling below the new £54m/£27m Companies Act limits is necessarily outside the fraud offence.
This is exactly the kind of threshold interaction that should be documented by reference to the relevant piece of legislation rather than an organisation-wide spreadsheet labelled simply “large company test”.
Audit perspective
Where classification affects the accounting regime or an audit exemption, auditors may expect management's analysis to address:
- the financial-year commencement date
- current and comparative qualifying conditions
- application of the transitional rules
- average employee numbers
- individual versus group classification
- group eligibility conditions
- the balance-sheet total used
- any significant accounting changes affecting total assets; and
- separate statutory criteria where another regime is being considered.
A short but explicit classification paper can prevent a surprisingly large amount of year-end uncertainty.
What should businesses do now?
- Check the start date of the accounting period to establish which thresholds apply.
- Recalculate classification using all three criteria, not turnover alone.
- Apply the two-year and transitional rules rather than rolling forward last year's answer.
- Assess the group separately where the company is a parent.
- Do not equate “small” automatically with audit exempt; test the statutory eligibility conditions.
- Model the impact of revised FRS 102 lease accounting if the balance-sheet total is close to a boundary.
- Maintain separate threshold analyses for other legislation rather than assuming Companies Act size definitions apply everywhere.
Conclusion
The higher UK company size thresholds can reduce reporting and audit burdens for some businesses, but the analysis is more nuanced than comparing turnover against a single number.
For 2026 accounts in particular, the interaction between new thresholds, transition rules, group classification and new FRS 102 accounting means an early size assessment is worthwhile.
Frequently asked questions
What is the small company turnover threshold in the UK for 2026 accounts?
For periods beginning on or after 6 April 2025, the turnover condition is £15m or less. Two of the three qualifying criteria must generally be satisfied.
What is the medium company threshold?
The monetary conditions are turnover of no more than £54m and balance-sheet total of no more than £27m, with the employee condition at 250.
Does being small automatically remove the audit requirement?
No. Small-company status is part of the audit-exemption analysis, but other eligibility rules and circumstances can still require an audit.
Did the employee thresholds increase?
No. They remain 10 for micro, 50 for small and 250 for medium.
Technical verification notes
Any entity close to a threshold, in an unusual group structure or potentially within an ineligible group should confirm the statutory classification against the Companies Act and current Companies House guidance.
Primary authority: Companies House accounts and company-size guidance · GOV.UK audit-exemption guidance