Definition
A medium-sized company is a business entity entitled to specific filing exemptions under accounting regulations. To qualify as a medium-sized company, the entity must meet at least two out of the following three criteria, calculated for the current and preceding financial year, or the two preceding financial years:
- Net Worth: The company’s net worth should not exceed £12.9 million.
- Turnover: The company’s turnover should not exceed £25.9 million.
- Employees: The company should have an average number of employees not exceeding 250.
In a company’s first financial year, it only needs to meet these conditions for that particular year. In the second financial year, it can claim medium-sized company filing exemptions if it met the conditions in its first financial year.
Note: Public limited companies, banking or insurance companies, authorized persons under the Financial Services Act 1986, or members of an ineligible group cannot claim these exemptions.
Examples
- Example 1: A tech company with a net worth of £10 million, an annual turnover of £20 million, and 200 employees qualifies as a medium-sized company as it meets two out of the three criteria.
- Example 2: A manufacturing company with a net worth of £11 million, annual turnover of £26 million, and 180 employees does not qualify because it exceeds the turnover limit despite meeting the employee and net worth criteria.
- Example 3: A new consulting firm with more than £12 million in net worth, £23 million in turnover, and 150 employees does not qualify as it must meet at least two of the criteria, and it does not.
Frequently Asked Questions
Q1: Can a first-year company qualify as a medium-sized company? A1: Yes, a first-year company only needs to meet the conditions for that year to qualify as a medium-sized company.
Q2: Can public limited companies claim medium-sized company exemptions? A2: No, public limited companies, as well as banking and insurance companies, cannot claim these exemptions.
Q3: What documents must a medium-sized company prepare? A3: A medium-sized company must prepare full audited financial statements for distribution to its shareholders.
Related Terms
- Net Worth: The total assets minus total liabilities of a company.
- Turnover: The total sales or revenue generated by a company during a specific period.
- Financial Year: A year-long period used by companies and governments for accounting purposes, often differing from the calendar year.
- Public Limited Company: A company whose shares are publicly traded, often subject to stringent regulatory requirements.
- Financial Statements: Formal records of a company’s financial activities and position, including the balance sheet, income statement, and cash flow statement.
Online References
Suggested Books for Further Studies
- “Accounting for Beginners: Ultimate Guide to Financial Accounting Principles and Reporting” by Michael Scott
- “Financial Accounting: An Introduction to Concepts, Methods and Uses” by Roman L. Weil, Katherine Schipper, and Jennifer Francis
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “UK Accounting Standards: A Quick Reference Guide” by David Southern
