UK Company Size Thresholds 2026

From April 2025, roughly 133,000 more UK companies qualify for reduced audit and reporting requirements under raised Companies Act size thresholds. For international companies weighing UK entity setup against Employer of Record arrangements, this shift directly affects the compliance cost calculation that determines when owning your own entity makes financial sense.

The UK government increased the turnover, balance sheet, and employee count criteria for micro, small, and medium classifications for the first time since 2013, delivering an estimated £240.2 million annual benefit to businesses through reduced reporting burdens. If you're planning UK operations or already running a small UK team through an EOR, these changes could tip the economics in favour of establishing your own entity sooner than you expected.

Let's walk through what actually changed, which expensive requirements you can now skip, and when it makes sense to stop paying EOR fees and set up your own UK company.

The Numbers That Determine Your Audit and Filing Requirements

The UK micro-entity threshold now permits annual turnover up to £1 million, up from £632,000 previously.

Small company turnover threshold increased to £15 million from £10.2 million under the new regulations.

Medium company turnover threshold rose to £54 million from £36 million.

Asset limits went up by about half for every company size.

Employee count thresholds remain unchanged at 10 for micro, 50 for small, and 250 for medium.

You need to hit two out of three limits (revenue, assets, or headcount) to stay in each category.

The changes apply to financial years beginning on or after 6 April 2025.

How the New Limits Change Your Audit and Disclosure Requirements

The Companies Act 2006 uses three metrics to classify UK companies: annual turnover, gross assets on the balance sheet, and average number of employees. A company qualifies for a size category by meeting at least two of these three thresholds.

The April 2025 regulations raised the monetary thresholds substantially while leaving employee counts untouched. For micro-entities, turnover jumped from £632,000 to £1 million, and balance sheet total from £316,000 to £500,000. Small companies saw turnover rise from £10.2 million to £15 million, with balance sheet moving from £5.1 million to £7.5 million.

Medium-sized companies received the largest absolute increases. Turnover threshold climbed from £36 million to £54 million, while balance sheet total went from £18 million to £27 million. These represent roughly 50% increases across all monetary criteria.

The employee thresholds stayed constant: 10 average employees for micro, 50 for small, and 250 for medium. This means a company with modest headcount but growing revenue now has more room before crossing into a higher compliance category.

The Exact Thresholds That Trigger Different Requirements

For micro-entities, the 2026 thresholds require meeting at least two of: turnover not exceeding £1 million, balance sheet total not exceeding £500,000, and average employees not exceeding 10. Previously, the turnover limit was £632,000 and balance sheet was £316,000.

Small company classification requires meeting at least two of: turnover not exceeding £15 million, balance sheet total not exceeding £7.5 million, and average employees not exceeding 50. The old limits were £10.2 million turnover and £5.1 million balance sheet.

Medium company status applies when a company meets at least two of: turnover not exceeding £54 million, balance sheet total not exceeding £27 million, and average employees not exceeding 250. These replaced the previous £36 million turnover and £18 million balance sheet thresholds.

The "average number of employees" calculation uses the monthly average of persons employed during the financial year, not a snapshot at year-end. This matters for companies with seasonal fluctuations or rapid growth trajectories.

What You Can Skip When You Stay Below the Limits

Does My Company Need an Audit Under the New Thresholds?

Small companies that meet the new thresholds can claim audit exemption, provided they're not otherwise ineligible. Public companies, certain financial services firms, and companies where shareholders holding 10% or more of shares request an audit cannot claim the exemption regardless of size.

The audit exemption removes the statutory requirement to have annual accounts audited by a registered auditor. For a small UK company, this typically saves £5,000 to £15,000 annually in audit fees, depending on complexity. However, many companies find that bank covenants, investor requirements, or customer procurement policies still require audited accounts in practice.

Micro-entities gain access to the micro-entities regime, which permits the most simplified form of statutory accounts. These accounts include a simplified balance sheet, no profit and loss account requirement in filed accounts, and minimal notes. The preparation and filing burden drops substantially compared to standard small company accounts.

What Filing Requirements Change for Small and Micro Companies?

Small companies can file abridged accounts with Companies House, omitting the profit and loss account from public filings while still preparing full accounts for shareholders. This provides commercial confidentiality while meeting statutory obligations.

The reduced reporting requirements mean less time spent on year-end accounts preparation, lower accountancy fees, and faster turnaround on annual filings. For companies operating across multiple jurisdictions, this reduction in UK compliance workload frees resources for managing obligations elsewhere.

Medium-sized companies don't gain audit exemption but do benefit from reduced disclosure requirements compared to large companies. They can file abbreviated accounts and face fewer strategic report requirements than their larger counterparts.

How This Changes Your EOR vs Entity Math

The compliance cost of running a UK entity forms a significant part of the EOR-to-entity crossover calculation. When Teamed advises mid-market companies on the graduation decision, statutory reporting and audit costs feature prominently in the ongoing entity expense line.

A UK company that qualifies as small under the new thresholds faces materially lower annual compliance costs than one classified as medium. The audit exemption alone can save £5,000 to £15,000 annually. Simplified accounts preparation might reduce accountancy fees by another £2,000 to £5,000. These savings compound over the multi-year period that entity economics must justify.

Consider a company with 15 UK employees generating £12 million in UK revenue. Under the old thresholds, this company would have been classified as medium-sized, requiring full audit and comprehensive reporting. Under the new thresholds, it qualifies as small, potentially saving £10,000 or more annually in compliance costs.

Does This Move Your Break-Even Point?

Teamed's Graduation Model guides companies through the progression from contractors to EOR to owned entity. The crossover point where entity ownership becomes cheaper than EOR depends heavily on ongoing compliance costs, not just formation expenses.

Based on Teamed's advisory work with mid-market companies across 70+ countries, the UK typically falls into Tier 1 for entity complexity, with an entity threshold of 10+ employees for native English speakers. The raised size thresholds make this calculation even more favourable by reducing the ongoing compliance burden for companies that stay below small or micro limits.

For a company with 10 UK employees at £7,500 annual EOR cost per employee, the three-year EOR total reaches £225,000. An owned entity with £25,000 setup cost and £3,500 annual cost per employee totals £130,000 over the same period. The new thresholds potentially reduce that £3,500 figure further by eliminating audit requirements and simplifying accounts preparation.

The break-even point shifts earlier when ongoing entity costs drop. A company that might have waited until 15 employees to justify entity setup could now find the economics work at 10 or even fewer, depending on revenue and balance sheet position.

Before You Incorporate: The Reality Check

When Should You Choose Entity Over EOR?

Choose a UK entity over an EOR when UK headcount and local commercial activity make employer control, IP ownership, and local contracting capacity more important than the speed and simplicity benefits of an EOR arrangement. The raised thresholds make this decision easier for companies that will remain below small company limits.

Choose an EOR over forming a UK entity when the business needs to employ in the UK quickly, has uncertain headcount plans, or wants to avoid taking on UK payroll, statutory filings, and year-end accounts ownership. EOR remains the right structure for market testing, short-term projects, or situations where exit probability exceeds 30%.

The new thresholds don't change the fundamental question: do you have a 3+ year commitment to the UK market with stable or growing headcount? If yes, and you're approaching 10 employees, entity economics increasingly favour ownership.

What Compliance Obligations Remain After Entity Formation?

International companies forming a UK entity should treat Companies Act reporting, payroll registration, and statutory employer obligations as separate compliance workstreams. Incorporation alone doesn't satisfy ongoing UK employer and reporting duties.

UK statutory accounts and confirmation statement filings go to Companies House, with automatic civil penalties for late accounts ranging from £150 to £1,500 depending on how late they are filed. PAYE registration with HMRC, workplace pension auto-enrolment requiring minimum 3% employer contributions, alongside other UK regulatory changes in 2026, and employment law compliance create additional obligations that don't disappear just because you qualify for simplified reporting.

The size thresholds affect reporting complexity, not the existence of obligations. A micro-entity still files accounts and confirmation statements, still runs payroll, and still complies with employment law. The difference lies in how much detail those filings require and whether external audit is mandatory.

What to Check Before Your Next Year-End

Choose to revisit size classification annually when turnover or balance sheet totals are volatile. UK size categories are tested by reference to statutory thresholds and can change the reporting and audit position year to year. A company that qualifies as small this year might cross into medium territory next year if growth accelerates.

Choose entity formation planning before entering the UK market when expected UK turnover and balance sheet growth will likely push the company above small thresholds within the next accounting cycle. Audit and fuller reporting can change total cost of ownership significantly.

For companies operating through a GEMO (Global Employment Management and Operations) provider like Teamed, the threshold changes integrate into the ongoing crossover monitoring that determines when entity graduation makes sense. The provider relationship remains constant while the underlying employment model evolves based on economics and operational needs.

The Bottom Line for Your UK Plans

The raised UK company size thresholds create a more favourable environment for small-scale UK entity ownership. Companies that previously faced medium-company compliance burdens now qualify for small-company exemptions, and those that were small now fit micro-entity criteria.

For mid-market companies managing international teams, this shifts the EOR-to-entity calculation. The compliance cost component of entity ownership drops, potentially bringing the crossover point earlier in your UK growth trajectory.

The right structure depends on your specific situation: headcount projections, revenue trajectory, commitment timeline, and operational requirements. If you're approaching 10 UK employees and planning long-term presence, the new thresholds make entity ownership more attractive than it was six months ago.

We can help you run the numbers on whether these new thresholds change your UK entity timeline. Talk to an Expert who's walked dozens of companies through this exact decision.