This article will focus on the criteria for company size and exemptions available for small companies. Before understanding the implications of a small company, below is a summary of conditions a company must meet to qualify for that particular group.

At least TWO of the three criteria must be met to qualify for that category:

Companies with years starting on or after 6 April 2008

Small size company

Medium size Company

Large size Company

Annual Turnover

Not exceed


Not exceed


More than


Balance Sheet

Not exceed


Not exceed


More than


Employee number

No more than 50

No more than 250

More than 250

Public companies and certain financial service companies cannot qualify as small companies. Similarly, companies which are part of a group which have members who are public companies or financial service companies cannot qualify as small.

The above is also applicable to a small group (which will include associated and subsidiary companies). To qualify as a small group two of the three conditions must be met. A parent company (usually part of a trading group) which qualifies as small does not need to prepare group accounts or submit them to Companies House. When incorporating a UK company clients generally assume it will automatically be small, however consideration will need to be made with regards to the group structure.

There are many exemptions available to small or a group of small companies. These are in the main lessbureaucratic and cheaper to maintain. Below are a few practical examples:

1. Prepare and submit accounts according to special provisions in the Companies Act 2006 and the relevant regulations. This means that they can choose to disclose less information than medium-sized and large companies.

2. Prepare and file simpler accounts than those required by large and medium companies. They do not have to deliver a copy of the directors' report or the profit and loss account to Companies House, a simple abbreviated balance sheet will suffice.

3. Below is a summary table of what is required to be filed at Companies House and the impact of information held at credit reference agencies.


Small companies

Medium companies

Large companies

Balance sheet

Abbreviated balance sheet with notes.

Full balance sheet.

Full balance sheet signed by a Director.

Profit and Loss

Not required.

Abbreviated profit and loss account.

Full profit and loss account.


No. Not required.

No. Not required.

Yes. Required

Auditor report

Special auditor report (if required).

Special auditor report.

Auditor report signed by an auditor.

Director report



Yes. Signed by an officer of the company.

Notes to the accounts



Yes. Plus group accounts if appropriate.

4. They are exempt from audits. Audits can be cumbersome with lengthy delays in preparation of filing accounts including the associated fees with audits. However, even if a small company meets the exemption criteria, it must still have its accounts audited if members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it.

5. There are tax exemptions from transfer pricing rules. Transfer pricing is the price at which goods (or services) are sold between companies in the same group. This raises serious tax issues. There are opportunities to avoid taxes by using artificial transfer prices to shift profits from high tax country to a low tax country. A debtor balance from parent to subsidiary can trigger a tax charge if the company qualifies as medium or large.

A company can qualify as small every year in its first accounting period if it fulfils the conditions in that period. Thereafter a company must fulfil the conditions in that period and the period before.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.