Key takeaways
- For financial years beginning on or after 6 April 2025, a micro-entity has turnover of up to £1 million, a balance sheet of up to £500,000 and up to 10 employees.
- A small company now has turnover of up to £15 million, a balance sheet of up to £7.5 million and up to 50 employees.
- A medium-sized company has turnover of up to £54 million, a balance sheet of up to £27 million and up to 250 employees.
- A company falls into a size category if it meets any two of the three tests: turnover, balance sheet total and average employees.
- The employee limits did not change; only the turnover and balance sheet limits rose, by about 50%.
- A transitional rule lets companies treat earlier years as if the new limits applied, so they can use a smaller category straight away.
- Public companies, banks, insurers and members of ineligible groups cannot be small, whatever their size.
UK company size thresholds rose by about 50% for financial years beginning on or after 6 April 2025. A company is now micro if it meets two of: turnover up to £1 million, balance sheet up to £500,000 and 10 employees or fewer. The small limits are £15 million and £7.5 million with 50 employees, and the medium limits are £54 million and £27 million with 250 employees.
What are the company size thresholds?
The thresholds are set by the Companies Act 2006, as amended by SI 2024/1303, made on 9 December 2024. A company qualifies for a category if it meets at least two of the three limits.
| Size | Turnover up to | Balance sheet up to |
|---|---|---|
| Micro-entity | £1m (was £632,000) | £500,000 (was £316,000) |
| Small | £15m (was £10.2m) | £7.5m (was £5.1m) |
| Medium | £54m (was £36m) | £27m (was £18m) |
The average employee limits stayed the same: 10 for micro, 50 for small and 250 for medium. Balance sheet total means total fixed and current assets, before deducting liabilities. A company that fits none of the categories is large.
When do the new thresholds apply?
The new limits apply to financial years beginning on or after 6 April 2025. They do not apply to a year that started before that date.
- 31 March year end: first applies to the year ending 31 March 2027 (started 1 April 2026)
- 30 June year end: first applies to the year ending 30 June 2026
- 31 December year end: first applies to the year ending 31 December 2026 (started 1 January 2026)
A company with a 30 June year end cannot use the new limits for the year ended 30 June 2025, because that year began on 1 July 2024.
How does the two-of-three test work?
You check your company against all three limits and count how many it meets. If it meets two or more, it qualifies for that size.
Example. A company has turnover of £1.4 million, a balance sheet total of £420,000 and 8 employees. It fails the micro turnover test but meets the balance sheet and employee tests. It is a micro-entity.
A company qualifies in its first financial year if it meets the limits that year. After that, it normally changes category only when it meets or fails the limits for two consecutive years.
What does the transitional rule do?
The transitional rule lets a company use the new limits straight away. Regulation 3 of SI 2024/1303 treats the company as having qualified in earlier years under the new limits, if it would have done so had they applied then.
Without it, a company would need two years under the new limits before moving down a category. ICAEW’s size of a company guidance says preparers can assume the new thresholds applied in the previous year.
Which applies to you?
- If your company meets two micro tests: you can prepare micro-entity accounts, with a simple balance sheet and profit and loss account. You do not file a directors’ report or profit and loss account at Companies House.
- If it meets two small tests: you can claim audit exemption, file abridged accounts with members’ agreement, and leave the profit and loss account off the copy filed at Companies House.
- If it meets two medium tests: you normally need an audit and a strategic report, but you can omit some disclosures, such as non-financial key performance indicators.
- If it meets none: the company is large and files full accounts.
Who cannot use the smaller categories?
Some companies cannot be small or micro whatever their figures. Companies House’s Life of a company guidance lists:
- public companies
- members of an ineligible group, such as a group with a traded company
- authorised insurance companies, banking companies and e-money issuers
- MiFID investment firms and UCITS management companies
- parent companies of groups that are not small groups
Charitable companies and overseas companies cannot be micro-entities.
What about groups?
Group limits use the same two-of-three test and can be measured net or gross of consolidation adjustments. SI 2024/1303 set these figures.
| Group | Turnover net (gross) | Balance sheet net (gross) |
|---|---|---|
| Small | £15m (£18m) | £7.5m (£9m) |
| Medium | £54m (£64m) | £27m (£32m) |
What else changed?
The same regulations trimmed the directors’ report. Small companies no longer report on the employment of disabled persons. Medium and large companies lost several disclosures, including financial instruments and engagement with employees, suppliers and customers.
What changes next?
More change may come. The Department for Business, Innovation, Science and Trade published its Modernising corporate reporting consultation on 7 September 2026, proposing to rationalise thresholds and exemptions. It closes at 11:59pm on 30 November 2026.
ICAEW reports that it explores extending small company exemptions to medium-sized companies, including audit. No new figures have been set. See audit exemption for medium-sized companies for what is known. Separately, Companies House has paused P&L filing for small companies from April 2028, and from 1 April 2028 companies claiming audit exemption must make an enhanced directors’ statement.
What advisers should do
- Re-test clients near the old limits for their first year beginning on or after 6 April 2025.
- Apply the transitional rule so clients can move down a category at once.
- Check for ineligible group members before claiming small company exemptions.
- Watch the consultation outcome before changing audit engagements.
Frequently asked questions
What is the turnover limit for a small company in 2026?
£15 million, for financial years beginning on or after 6 April 2025. The company must also meet one of the other tests: balance sheet up to £7.5 million or 50 employees or fewer.
What is a micro-entity after April 2025?
A company that meets two of: turnover up to £1 million, balance sheet total up to £500,000 and 10 employees or fewer.
Did the employee thresholds change?
No. The limits are still 10 employees for micro, 50 for small and 250 for medium.
Can my company use the new thresholds straight away?
Yes, for its first financial year beginning on or after 6 April 2025. The transitional rule treats earlier years as if the new limits applied.
Do small companies still need an audit?
Usually not. A small company can claim audit exemption unless members holding at least 10% of the shares ask for an audit at least one month before the year end.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.
- The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, SI 2024/1303 (legislation.gov.uk)
- Life of a company, part 1: accounts (Companies House)
- Size of a company (ICAEW)
- Filing your Companies House accounts (Companies House)
- Modernising corporate reporting consultation (Department for Business, Innovation, Science and Trade)