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What is a Small Company for Accounting Purposes?

The definition of a small company is contained in Sections 382 and 383 of the Companies Act 2006. The qualifying conditions, contained in Section 383, are met by a company in a year in which it does not exceed two or more of the following criteria:

  • Aggregate turnover of £6,500,000 net (or £7,800,000 gross).
  • Aggregate balance sheet total of £3,260,000 net (or £3,900,000 gross).
  • Aggregate number of employees is 50.

‘Net’ means after the set-offs and other adjustments required by Schedule 6 of the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 in the case of group accounts, and ‘gross’ means without those set-offs and adjustments. For any company, other than a newly incorporated company, to qualify as small, the qualifying conditions must be met for two consecutive years.

A company will cease to qualify as small if it fails to meet the qualifying conditions for two consecutive years. However, if a company which qualified as small in one period no longer meets the criteria for small in the next period, the company may continue to claim the exemption available in the next period. If that company then reverts back to being small by meeting the criteria, the exemption will continue uninterrupted.

Certain companies are excluded by Section 384 from the ‘small company’ criteria for reasons of public interest. These are any entity that is, or is in, a group that includes:

(a) a public company.
(b) a small company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company or a company that carries on insurance market activity.
(c) a body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA State.
(d) a person (other than a small company) who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity.

A parent company shall not be treated as qualifying as a small company in relation to a financial year unless the group headed by it qualifies as a small group. A company may satisfy the relevant requirements on the basis of either the net or the gross figures.

Reference should also be made to Schedule 6 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, because it is possible that after the set-offs and other adjustments required by that Schedule, a group which started off large or medium-sized, could become small.

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