What Is Classed as a Small Business in the UK? (2026 Thresholds)
On this page: Quick Answer | The Official Thresholds | Micro, Small & Medium Compared | Why the April 2025 Change Matters | Why Classification Matters | The Two-Year Grace Rule | Different Definitions for Different Purposes | Examples | Common Mistakes | Editor’s Insights | Checklists | FAQ | Sources
If you’ve searched for a straightforward answer to “what counts as a small business,” you’ve probably noticed most results give slightly different numbers — and a fair few of them are simply out of date. The official UK thresholds changed in April 2025, and much of the content still online hasn’t caught up.
This guide gives the current, correct thresholds under the Companies Act 2006, explains why the classification genuinely matters beyond just labelling, and flags exactly where outdated figures are still circulating.
Quick Answer
A UK company is classed as small if it meets at least two of three criteria: annual turnover of £15 million or less, a balance sheet total of £7.5 million or less, and no more than 50 employees. These thresholds increased from £10.2 million and £5.1 million for financial years beginning on or after 6 April 2025 — a change a significant amount of existing online content still hasn’t reflected.
The Official UK Small Business Thresholds
Under the Companies Act 2006, a company qualifies as “small” if it meets at least two of three specific size criteria, assessed at the end of each financial year.
The current thresholds, in force for financial years beginning on or after 6 April 2025, are: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and no more than 50 employees. Meeting any two of these three conditions is sufficient — a company doesn’t need to satisfy all three simultaneously.
Editor’s Insight: A surprising amount of currently published guidance — including recent-looking articles — still quotes the pre-2025 figures of £10.2 million turnover and £5.1 million balance sheet. If you’re checking your own classification, confirm you’re working from the £15 million/£7.5 million figures, not the older ones still widely circulated.
Micro, Small and Medium Entities Compared
UK company size classification actually has three tiers, not just “small” versus “large” — each with meaningfully different reporting obligations.
| Category | Turnover | Balance Sheet | Employees |
|---|---|---|---|
| Micro-entity | £1 million or less | £500,000 or less | 10 or fewer |
| Small company | £15 million or less | £7.5 million or less | 50 or fewer |
| Medium-sized company | £54 million or less | £27 million or less | 250 or fewer |
As with the small company definition, a business needs to meet at least two of the three criteria in each row to qualify for that category. Micro-entities benefit from the simplest reporting requirements of all, including the option to file abridged or dormant accounts where applicable.
Why the April 2025 Threshold Change Matters
The Companies Act thresholds increased across all three size categories for financial years beginning on or after 6 April 2025, reflecting inflation and cost growth since the previous limits were set.
This matters practically because a company that was classed as “medium” or even “large” under the old figures might now qualify as “small” under the new ones, without anything about the business itself actually changing — simply because the goalposts moved. Checking your classification against the current thresholds, rather than assuming last year’s assessment still holds, is worth doing specifically because of this shift.
Editor’s Insight: If your business sits close to any threshold, it’s worth recalculating your classification specifically against the post-April-2025 figures, since a company that narrowly missed “small” status under the old £10.2 million turnover limit may comfortably qualify now under £15 million.
Why Your Classification Actually Matters
Being classed as small isn’t just a label — it directly affects your accounting obligations, tax position, and eligibility for certain support schemes.
Small companies can file simplified accounts with Companies House, using less detailed reporting than larger companies require. Most small companies are also exempt from statutory audit, provided they meet the size criteria and aren’t in a specifically regulated industry like financial services. Beyond accounting, classification can affect eligibility for certain grants, loans, and tax reliefs that are specifically targeted at smaller businesses.
The Two-Year Grace Rule
The Companies Act includes a grace period preventing a company from immediately losing its small (or micro) status after a single unusually strong year.
A company classed as small in the previous year that exceeds the thresholds in the current year doesn’t lose that status straight away — it must exceed the thresholds in two consecutive years before being reclassified. This avoids a business being forced into more complex reporting requirements purely because of one atypical, stronger-than-usual financial year.
Different Definitions for Different Purposes
The Companies Act’s small business definition isn’t the only one in UK use — HMRC, government procurement, and the older EU-derived SME definition all use genuinely different thresholds for different purposes.
The Companies Act criteria specifically determine accounting and filing obligations. Separately, the UK government’s SME definition for public procurement purposes (under the Procurement Act 2023) uses its own threshold criteria for staff, turnover, and balance sheet, which can differ from the Companies Act figures. Some government support schemes and older references still use the broader, EU-derived micro/small/medium definitions, which historically used lower turnover limits than the current Companies Act thresholds.
Editor’s Insight: Always check which specific definition applies to what you’re trying to determine — a business could genuinely be “small” for Companies House accounts purposes while falling into a different category for a specific grant or procurement scheme using its own criteria.
Illustrative Examples
Real-World Scenario — Newly qualifying as small after the 2025 change: A company with £13 million turnover, a £6 million balance sheet, and 45 employees didn’t qualify as small under the pre-April-2025 thresholds, since its turnover exceeded the old £10.2 million limit. Under the current £15 million threshold, the same company now qualifies, allowing it to file simplified accounts going forward.
Real-World Scenario — The grace period in action: A small company has an unusually strong year, with turnover reaching £16 million against the current £15 million threshold. Because it only exceeds the threshold in this single year, the two-year grace rule means it retains its small company status for now, avoiding an immediate shift to more complex reporting.
Common Mistakes
- Relying on outdated threshold figures — a significant amount of currently published content still quotes the pre-April-2025 turnover and balance sheet limits.
- Assuming all three criteria must be met — only two of the three (turnover, balance sheet, employees) need to be satisfied to qualify for a given size category.
- Confusing the Companies Act definition with other SME definitions — assuming a single “small business” threshold applies universally across HMRC, procurement, and grant schemes, when each can use its own criteria.
- Not accounting for the two-year grace rule — assuming a single strong year automatically triggers reclassification, when the rule specifically requires two consecutive years above threshold.
- Checking classification only once, then never revisiting it — not reassessing annually as turnover, balance sheet position, and employee numbers naturally change over time.
Editor’s Insights
- The April 2025 threshold increase is a genuinely underreported change — many businesses that assumed they didn’t qualify as small under the old limits are now eligible and simply haven’t checked.
- The two-year grace rule is one of the more overlooked protections in the Companies Act — it’s specifically designed to prevent one unusually good year from creating a disproportionate compliance burden.
- Different government departments genuinely do use different size definitions for different purposes, so it’s worth confirming the specific definition relevant to whatever you’re checking eligibility for, rather than assuming one figure applies everywhere.
- Since classification is assessed at each financial year end, it’s worth building an annual check into your year-end process rather than treating it as a one-off exercise done only when first setting up.
- If your business sits close to any threshold in either direction, getting professional confirmation of your classification is worth the modest cost, given how directly it affects your reporting obligations and potential audit exemption.
Checking Your Classification Checklist
Annual Review Checklist
FAQ
What is the current turnover threshold for a small business in the UK? A company is classed as small if its annual turnover is £15 million or less, alongside meeting at least one other criterion (balance sheet total or employee count) — this threshold applies for financial years beginning on or after 6 April 2025.
Did the small business thresholds recently change? Yes — the turnover and balance sheet thresholds increased (from £10.2 million to £15 million, and £5.1 million to £7.5 million respectively) for financial years beginning on or after 6 April 2025.
Do I need to meet all three small business criteria? No — you only need to meet at least two of the three criteria (turnover, balance sheet total, employee count) to qualify as a small company.
What’s the difference between a micro-entity and a small company? A micro-entity has stricter limits (turnover of £1 million or less, balance sheet of £500,000 or less, 10 or fewer employees) than a small company, and benefits from even simpler reporting requirements, including abridged or dormant accounts options.
Does being classed as small mean I don’t need an audit? Most small companies are exempt from statutory audit, provided they meet the size criteria and aren’t in a specifically regulated industry, though it’s worth confirming your specific exemption eligibility.
Can my company lose its small business status after one good year? Not immediately — the Companies Act’s two-year grace rule means a company must exceed the thresholds in two consecutive years before being reclassified, protecting against reclassification from a single unusually strong year.
Are HMRC’s small business definitions the same as Companies House’s? Not necessarily — different government purposes (accounts filing, tax reliefs, procurement, grants) can use different size definitions and thresholds, so it’s worth checking which specific definition applies to what you’re assessing.
Where can I find the official current thresholds? GOV.UK’s guidance on small company accounts sets out the current, legally binding thresholds — always check this directly rather than relying on third-party summaries that may not reflect the April 2025 update.
Sources & References
- GOV.UK — small company accounts guidance
- Companies Act 2006 (as amended)
- GOV.UK — Procurement Act 2023 SME definition guidance
- Companies House — annual accounts filing requirements
Written by the Epiclectic Editorial Team. Epiclectic covers UK lifestyle, money, home, work and everyday-life topics for a national audience. Last reviewed: August 2026
Conclusion
Knowing exactly what classes as a small business matters more than it might first appear — it directly shapes your accounting obligations, audit requirements, and eligibility for certain support. With the thresholds having genuinely changed in April 2025, it’s worth checking your own classification against the current figures rather than relying on older guidance still circulating online.
If you’re working out your broader business structure alongside classification, our guide to different types of business structures covers the related decision of company type, and our small business corporation tax guide explains how company size and profit both factor into your actual tax position.
