Entitlement to the medium-sized companies regime

The Companies Act 2006 (CA 2006) sets out the criteria to determine whether an entity is entitled to the medium-sized companies regime for the purpose of preparing their annual reports and accounts. Certain types of entity are excluded from the regime, as are members of an ineligible group, and there are size-thresholds to be met.

The key steps to determine whether a company is entitled to the medium-sized regime are as follows:

Determine eligibility by reference to qualitative criteria:

• Is the company ineligible due to the nature of its business?

• Is the company a member of an ineligible group?

Determine qualification by reference to size thresholds:

• If the company is a parent company, does the group headed by it qualify as a medium-sized group?
• Does the company qualify as medium-sized?

Each of these steps are considered in greater detail below.

A company will be ineligible for the medium-sized companies regime if at any time during the financial year to which the accounts relate it was:

• A public company (plc) (even an unquoted or privately held one)
• A company that has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on a regulated activity
• An e-money issuer
• A company that carries on insurance market activity
• A scheme funder of a Master Trust scheme within the meanings given by s391(1) of the Pension Schemes Act 2017.

A company will be ineligible for the medium-sized companies regime if it was a member of an ineligible group at any time during the financial year to which the accounts relate.

An ineligible group is a group if any of its members is:

• a traded company
• a body corporate other than a company under CA 2006 (eg, a company incorporated overseas) whose shares are admitted to trading on a UK regulated market
• a person (other than a medium-sized company) who has permission under Part 4A Financial Services and Markets Act 2000, to carry on a regulated activity
• an e-money issuer
• a person who carries on insurance market activity
• a scheme funder of a Master Trust scheme within the meanings given by s391(1) of the Pension Schemes Act 2017
• a small company (a company that qualified as small by application of the size limits in relation to its last financial year ending on or before the end of the year to which the accounts relate) that is:

• • an authorised insurance company
  • a banking company
  • a MiFiD investment firm
  • a UCITS management company.

The entire group, including any intermediate and ultimate parent entities and fellow subsidiaries, whether UK or overseas, needs to be considered.

In its first financial year, a group qualifies as medium sized if it meets the size limits in that financial year.

In any subsequent financial year, it will qualify on what is sometimes called the two-year rolling basis. This requires the group to meet the size limits for two consecutive years to qualify as medium-sized.

If the group fails to meet the size criteria for two consecutive years, it will not qualify as medium sized on the second year.

Only the group headed by the parent company seeking to qualify as medium-sized needs to be considered (ie, if the parent itself is itself a subsidiary, it is not necessary to consider any larger group of which it is part).

The size limits are met for a financial year if two out of the three of the following limits are met (aggregating the relevant figures for each member of the group).

	Gross	Net
Turnover not more than	£43.2 million	£36 million
Balance sheet total not more than	£21.6 million	£18 million
Monthly average of employees not more than	250	250

Gross means before any consolidation adjustments and set-offs; net means after such adjustments. An entity is permitted to access one of the limits on a gross basis and another on a net basis.

The turnover limit is adjusted proportionately if the financial year is longer or shorter than twelve months.

In its first financial year a company qualifies as medium-sized if it meets the size limits in that financial year.

In any subsequent year, it will qualify on what is sometimes called the two-year rolling basis. This requires the company to meet the size limits for two consecutive years to qualify as medium-sized. If the company fails to meet the size limits for two consecutive years, it will not qualify as medium-sized in the second year.

The size limits are met for a financial year if two out of the three of the following limits are met:

Turnover not more than	£36 million
Balance sheet total not more than	£18 million
Monthly average of employees not more than	250

The turnover limit is adjusted proportionately if the financial year is longer or shorter than twelve months.

Balance sheet total means the aggregate of the amounts shown as assets in the company’s balance sheet.

• For detailed guidance on the criteria for each size regime of company in the Companies Act 2006 view the Entitlement to the micro, small, medium and large companies regimes factsheet (Faculty members only).
• Further guidance is available on the information required in the strategic report and directors’ report.