Small Company Accounts: UK Definition, Thresholds and Filing

The legal definition

Under the Companies Act 2006 (as updated by SI 2024/1303, effective for accounting periods starting on or after 6 April 2025), a company is a small company if it meets at least two of the following three thresholds:

These limits were raised significantly in 2024 — the old limits were £10.2m turnover, £5.1m balance sheet and the same 50 employees. The headcount threshold did not change.

The "2 out of 3" rule

You qualify if you hit any two of the three. You don't need to be below all three.

Worked example. A consultancy with:

• Turnover £18m (over the limit)
• Balance sheet total £3m (under)
• 22 employees (under)

→ Meets 2 of 3 thresholds → small company, despite turnover being well above £15m.

When the rules kick in

For your first financial year, you're small if you meet the thresholds in that year. From year two onward, you only lose small status if you exceed the thresholds in two consecutive years — a single bad year doesn't bump you up to "medium".

The same "two consecutive years" rule applies in reverse if you're shrinking back into the small category.

Micro-entity vs small vs medium

A company that qualifies as micro-entity automatically qualifies as small — micro-entities get even shorter accounts.

What small status unlocks

Being a small company is a meaningful tax and admin win:

1. Abridged or filleted accounts at Companies House — you can omit the profit & loss account and directors' report from the public copy.
2. Audit exemption — no statutory audit required unless you fall into a special category (banking, insurance, pension scheme administration, plc, or a member of an ineligible group).
3. FRS 102 Section 1A — a simplified accounting framework with fewer required disclosures than full FRS 102.
4. No strategic report required.
5. Simpler director's report — small companies are exempt from many statutory disclosures.

Companies that can never be small

Even if you hit the thresholds, you're excluded from small-company status if you're:

• A public company (plc)
• An authorised insurance company, banking company or e-money issuer
• A UCITS management company
• A pension scheme administrator
• A member of an ineligible group (one that contains any of the above)

Group small-company thresholds

If you're a parent of a group, you measure the thresholds on a consolidated basis (gross — adding all subsidiaries together) or net (after consolidation eliminations). The net limits are:

• Net turnover ≤ £15m / gross ≤ £18m
• Net balance sheet ≤ £7.5m / gross ≤ £9m
• Employees ≤ 50

A group is small if it meets two of three on either the net or the gross basis.

Why this matters for tax

Small-company status is mainly a Companies Act concept, not a tax one. For Corporation Tax:

• The small profits rate (19% on profits up to £50,000) and marginal relief (between £50k and £250k) apply based on profit, not company size, so a large company with low profits still pays at 19%.
• R&D SME status has its own tax definition and linked/partner-enterprise rules; Companies Act small or micro status does not establish R&D eligibility.

Quick checklist

1. Take your latest figures: turnover, total assets, average employees
2. Tick off each one against the three thresholds
3. If you hit 2 of 3, you're small. If you also hit micro-entity limits, you're a micro-entity.
4. Apply the "two consecutive years" rule before changing classification
5. Confirm you're not in an ineligible category (plc, bank, insurer, etc.)

Update — 1 April 2028 reforms

From 1 April 2028, Companies House requires all UK companies to file accounts via commercial software, and small companies and micro-entities must file a profit and loss account (with an opt-out from publication on the public register). Web and paper accounts filing routes close on that date. See our full guide: Companies House Accounts Reforms 2028.

Which accounts does a small company file?

Small status changes what you send to Companies House, not whether you send anything.

Two points that catch people out:

• The profit & loss account is still required for HMRC. Filleted accounts only reduce what becomes public at Companies House; the CT600 still needs full figures and a tax computation.
• From the Companies House reforms taking effect later this decade, small and micro-entity companies will be required to file a profit & loss account. Filleted filing is being phased out.

Audit exemption for small companies

A small company is exempt from a statutory audit unless it is part of an ineligible group (a bank, insurer or other regulated entity), is part of a group that is not small overall, or shareholders holding at least 10% of the shares demand one.

If you claim exemption, the balance sheet must carry the statutory audit-exemption statement signed by a director.

Common mistakes on small company accounts

1. Using micro-entity thresholds when the company only qualifies as small — the two tiers are different.
2. Treating a single year above a threshold as a loss of small status. You only move up after exceeding the limits in two consecutive years.
3. Filing abridged accounts at Companies House and assuming HMRC has been dealt with. They are two separate filings with two separate deadlines.