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Last updated October 2026.
The two qualification tests
On the qualification date an undertaking is in scope if it meets either of two tests. The first is headcount: 250 or more employees in the UK. The second is financial: annual turnover above £44 million and a balance sheet total above £38 million, and for this route both figures have to be exceeded. A business with £60 million turnover and a £20 million balance sheet does not qualify on the financial route, although it may on headcount.
| Test | Threshold | Notes |
|---|---|---|
| Headcount | 250 or more employees | Counted as full-time equivalents averaged over the financial year, including part-time and seasonal staff pro rata. |
| Financial | Turnover above £44m and balance sheet above £38m | Both must be exceeded. Figures are taken from the most recent accounts before the qualification date. |
| Group | Any UK member qualifies | If one UK undertaking in a corporate group qualifies, all UK members of the group are in scope and normally comply together. |
Employees means people employed under a contract of employment, so agency staff and contractors are generally excluded while directors on payroll are included. The figures are judged on the qualification date, which for Phase 4 is 31 December 2026, using the most recent financial year that ended before it.
The group rule and why it matters
The rule that catches most organisations by surprise is the group one. ESOS is assessed at the level of the highest UK parent, and if any undertaking in that group qualifies, every UK undertaking in the group participates. A holding company with one large trading subsidiary and five small ones has six participants, and the small ones cannot opt out because they are small.
Groups normally comply as a single participant led by the highest UK parent, which simplifies the notification but means the energy of every member has to be in the total. Groups can choose to disaggregate and comply separately if they prefer, which sometimes suits organisations with very different businesses under one owner. Joint ventures and franchises are judged on who controls the undertaking, not who owns the brand.
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Overseas ownership, trusts and the public sector
A business owned from outside the UK is assessed on its UK undertakings only. If the UK subsidiary of a foreign group meets the thresholds on its own, or the UK part of the group collectively does, it is in scope; the parent’s size elsewhere is irrelevant. Non-UK undertakings in a group are never participants, although a UK parent with foreign subsidiaries only counts its UK energy.
Public bodies as defined in the regulations are excluded, which removes central and local government, NHS trusts and most of the public sector. The exclusion is narrower than people assume: housing associations and companies owned by local authorities may be in scope depending on how they are funded and governed, while academy trusts and most universities count as public bodies and are exempt; take advice if you sit near the line. Charities and not-for-profits that meet the tests are in scope like any other undertaking.
If you are near the threshold
Organisations that hover around 250 staff or the financial limits should do the test formally on the qualification date and keep the workings, because the regulator can ask for them. A business that qualified in Phase 3 and has since shrunk is not automatically out; it is judged afresh. One that has grown past the thresholds since Phase 3 is in for the first time and has no previous data to lean on, which argues for starting data collection early.
Frequently asked questions
Does ESOS apply to a business with 250 employees but low turnover?
Yes. The headcount test stands on its own. An organisation with 250 or more UK employees qualifies regardless of turnover or balance sheet.
Our turnover is above £44 million but our balance sheet is under £38 million. Do we qualify?
Not on the financial route, which needs both figures to be exceeded. Check the headcount test separately.
We are a small UK subsidiary of a large group. Are we in scope?
If any UK member of your corporate group qualifies, every UK member is in scope and the group normally complies together under the highest UK parent.
Does ESOS apply to charities?
Yes, if they meet the thresholds. The exclusion is for public bodies in the legal sense, not for not-for-profits generally.
Are universities and academy trusts exempt from ESOS?
Usually not. Most are not public bodies as the regulations define them and are in scope if they meet the tests.
How are employees counted for ESOS?
As full-time equivalents averaged over the financial year, including part-time staff pro rata. Agency workers and contractors are generally excluded.
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