Small company thresholds UK: Changes, reporting rules, and audit exemptions

Published 10 March 2026

Table of contents

• What is the small company threshold?
• What’s changed in the company size thresholds
• How to work out your company’s size
• Which small company reporting requirements apply to my business?
• Claiming an audit exemption as a small company
• Simplify your Companies House compliance with Xero
• FAQs on the small company threshold

Key takeaways

• New company size thresholds came into place on 6 April 2025. For many businesses, the increased thresholds mean they meet the small company threshold and have fewer reporting requirements as a result.
• You can verify your company size by assessing your turnover, balance sheet, and employee numbers against the threshold criteria. Your business’s size is determined by whether you meet these conditions for two consecutive years.
• From 1 April 2027, small companies will also be required to disclose more information and use commercial software to file sets of accounts with Companies House.

What is the small company threshold?

The small company threshold refers to the financial criteria a business must meet to be legally classified as a “small company” under the Companies Act 2006. To qualify, a company must meet at least two of the following three thresholds in a financial year:

• annual turnover
• balance sheet total (assets)
• average number of employees

Company size thresholds are set out in legislation and determine the level of financial reporting and compliance obligations a business must follow. Different size categories are subject to different filing requirements, and failing to submit the right information may result in penalties. The larger the company, the more complex the reporting requirements.

Companies that qualify as small can benefit from simplified financial reporting requirements, including reduced disclosure obligations and, in many cases, exemption from audit.

What’s changed in the company size thresholds?

In 2024, the UK government announced it would be increasing the company size thresholds by 50%. Companies need to meet at least two requirements for a size category to qualify. The new UK company size limits have been in place since 6 April 2025.

For the small company threshold, your business must have no more than:

• £15 million annual turnover (previously: £10.2 million)
• £7.5 million balance sheet (previously: £5.1 million)
• an average of 50 employees in the financial year

If the small company is part of a group, the group also needs to qualify as a small company. Companies House provides conditions for small groups online.

There are also changes for micro- and medium-sized businesses – if that's you, you'll find full details here.

Businesses that don’t meet these criteria are classified as large companies. The increasing thresholds mean more businesses are categorised as small or medium-sized, making them eligible for simpler reporting and reduced compliance obligations at Companies House. The government also expects the change to save SMEs £150 million per year, and save small businesses 1 million hours per year, too.

Further changes are happening for businesses and reporting, as part of the Economic Crime and Corporate Transparency Act. We cover some of these changes in this guide.

How to work out your company’s size

To work out your company size, check your business against the conditions outlined above. You need to meet at least two of the conditions for a specific business size category to qualify as that size. The updated size thresholds and criteria are listed in the GOV.UK guidance on filing accounts with Companies House.

If you’re using modern accounting software, you should be able to determine the size of your company in a few clicks by pulling up a balance sheet report and annual turnover. If you can’t check for yourself, ask a qualified accountant or bookkeeper before preparing your accounts to make sure you’re filing for the right size group.

The 2-year rule

There’s also the 2-year rule to think about.

• In the first year, your company size is determined by the conditions above.
• After that, your company size is determined by whether you meet the conditions for two consecutive years.

This means that if you meet the small company threshold in the first year, but your annual turnover and balance sheet grows enough to meet the medium-sized threshold the following year, you can still file small company accounts. But if you don’t meet the small company thresholds 2 years in a row, you’ll need to update your company size and sets of accounts.

The 2-year rule means businesses don’t need to keep changing how they file if their business size fluctuates every year – making it easier to file accounts with Companies House.

Which small company reporting requirements apply to my business?

Small company reporting requirements are changing.

Current rules

Currently, small company accounts usually include:

• a profit and loss account
• a balance sheet signed by a director on behalf of the board
• notes to the accounts
• group accounts (if your company is part of a group)

Alongside these accounts, you need:

• a directors’ report showing the signature of a director or secretary and their printed name
• an auditor’s report with the auditor’s name printed (unless your company is audit-exempt)

Right now, small companies get to choose whether to deliver a profit and loss account and a directors’ report to Companies House. If you decide not to provide the profit and loss account, you need to state this on your balance sheet.

New rules from 1 April 2027

For financial years beginning on or after 1 April 2027, new Companies House filing requirements will apply. Under the updated rules, companies will:

• need to file a copy of the company balance sheet, auditor’s report (unless exempt), and your profit and loss account
• no longer be able to file abridged accounts (where the balance sheet and profit and loss accounts contain a condensed amount of information)
• be required to submit accounts using approved software (paper and web-based filing will be withdrawn)

Software already exists that lets you do this, so you don’t need to wait until the deadline to find a solution.

Claiming an audit exemption as a small company

Most small companies can claim an audit exemption and submit unaudited accounts to Companies House, provided they qualify as small under the size thresholds and aren’t otherwise excluded from exemption.

To qualify as small, a company must meet at least two of the three statutory thresholds for turnover, balance sheet total, and average number of employees. However, some companies can’t claim audit exemption even if they meet size criteria. This includes certain regulated entities and companies that are part of ineligible groups. In addition, shareholders representing at least 10% of shares can require the company to obtain an audit.

The audit exemption rules themselves aren’t being removed under the new Companies House filing requirements. Eligible small companies will still be able to claim exemption from audit.

Claim a small company audit exemption by including a statement like this on your balance sheet confirming eligibility:

For the year ending [your company’s year-end date], the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.

The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.

The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.

These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

Double-check your company is eligible to send unaudited accounts by reviewing the GOV.UK’s small company audit exemption guidance.

Simplify your Companies House compliance with Xero

No matter how big your company is, Xero helps make your daily accounting and regular tax tasks easier and faster. Xero’s clever features – like connected bank feeds and automated reconciliation predictions – help speed up your bookkeeping and get a clearer view of your business finances.

And with software-only filing on the horizon for 2027, getting Xero in place now means you’ll already have a compliant solution before the deadline. Your accountant or bookkeeper can use Xero to file company accounts and returns directly to Companies House and HMRC, using the records you keep in Xero.

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FAQs on the small company threshold

Here are common questions and answers regarding the small company threshold:

What’s an example of a small company?

A small company is one that meets Companies House size thresholds. Here’s a hypothetical example:

The Royal Hotel and Spa meets two of the three small company criteria – it has a £14 million annual turnover and a 6.5 million balance sheet. Staff numbers fluctuate with the seasons: last year business had 48 staff, while this year, there are 55 staff members. While this takes the business over the employee threshold, the hotel continues to meet the other small company thresholds.

Can I appeal if Companies House disagrees with my small company classification?

Companies House doesn’t have a formal “appeal” process specifically for small company classification itself. The classification is based on the company’s financial figures, statutory thresholds, and group structure, generally assessed over two consecutive financial years, as set out in the Companies Act 2006.

If Companies House queries your accounts or identifies errors, you can provide supporting evidence showing your company meets the size thresholds and relevant exemptions, and correct and resubmit your accounts.

If you receive a notice or penalty you disagree with, you may need to seek professional advice from an accountant or legal adviser.

What are the penalties for misclassifying my company size?

Misclassifying your company’s size can lead to compliance issues with Companies House. If a company submits accounts that don’t meet the reporting requirements for its correct size category – for example, filing small company accounts when it should file medium or large company accounts – Companies House may issue late filing penalties or requests for amended accounts.

In some cases, repeated or deliberate misreporting could also trigger investigations by the regulators or civil penalties under the Companies Act 2006.