Do I qualify?
Am I an undertaking?
Only undertakings and groups of undertakings can qualify for ESOS.
An undertaking is defined as ‘(a) a body corporate or partnership, or (b) an unincorporated
association carrying on a trade or business, with or without a view to profit’. As such, the
scheme covers, but is not limited to, the following types of organisations in the UK:
• limited companies;
• public companies;
• unincorporated associations; and
• not-for-profit bodies
Undertakings which meet the qualification criteria set out in Sections 3.1.2 or 3.1.3 will need to comply with ESOS.
Qualification as a large undertaking
Your organisation will be in scope of ESOS if it qualifies as a large undertaking. For the
purposes of ESOS, an undertaking is a large undertaking if it meets either of the following
1. It has 250 or more employees4.
2. It has fewer than 250 employees, but has:
o an annual turnover exceeding €50m and
o a balance sheet exceeding €43m.
Qualification via a corporate group
In addition to the qualification route set out above, an undertaking will also qualify for ESOS if it is part of a corporate group containing at least one ‘large undertaking’ (as determined by the criteria outlined above) within the UK.
Determining whether an undertaking meets the thresholds
In determining whether they meet the financial thresholds outlined above, undertakings should use their most recent annual financial statements ending on or before the
qualification date. Sterling figures must be converted into Euros using the exchange rate
prevailing on the qualification date.
However, to fully determine if you meet the qualification criteria you may need to consider older financial statements. See below for more information on how growing organisations that were previously small can qualify as large (and similarly for information on how shrinking organisations may still qualify). Sterling figures in older financial statements must also be considered using the same conversion rate (i.e. that prevailing on the qualification date for the compliance period in question).
Example – Company A
Company A has a financial year running from 1st April to 31st March each year.
Company A only employs 150 people.
At the qualification date for the first phase of ESOS, 31st December 2014, Company A’s most
recent set of financial statements will be those for the year to 31st March 2014. These accounts show revenue of £42m and balance sheet assets, at the year-end, of £34m.
The exchange rate prevailing on the qualification date is €1.25 per GBP. The revenue and
balance sheet assets of Company A should be converted to Euros using this rate, for
comparison with the financial thresholds.
For ESOS purposes, Company A’s revenue for the year is therefore €52.5m (42 x 1.25 = 52.5)
and its balance sheet assets are €42.5m (34 x 1.25 = 42.5).
Company A therefore exceeds the revenue threshold of €50m but does not exceed the balance sheet threshold of €43m. Considering just this financial year, Company A would therefore be considered small. (However, to fully confirm it is in fact small Company A would also need to consider it financial statements for the year 2012/13).
In determining whether they meet the employee threshold, undertakings should add the total number of people they employed (including employees and other persons engaged in the business of the organisation, such as owner-managers and partners) in each of the months of the relevant accounting period (i.e. the period which the financial statements used to consider the financial thresholds relate to) and divide by the number of months in that period.
Example – Company B
Company B has a financial year running from 1st April to 31st March each year.
At the qualification date for the first phase of ESOS, 31st December 2014, Company B’s most
recent set of financial statements will be those for the year to 31st March 2014. Therefore, it
should consider the number of employees during that period.
At 1st April 2013, Company B has 5 Directors and 235 employees. On the 10th July 2013
Company B hires 20 more employees. There are no changes in employee or Director numbers before the end of the year.
For three months in its financial year (April, May and June) Company B has a total of 240 staff (5 Directors plus 235 employees). For nine months of the year (July 2013 to March 2014) the company has a total 260 staff in the month (5 Directors and 255 employees).
For ESOS purposes, Company B’s number of employees for the year is therefore 255,
calculated as:((240 x 3) + (260 x 9)) / 12 = 255
The company therefore exceeds the employee threshold at the qualification date.
As described above, if your organisation does not meet the criteria laid out, you will still qualify for ESOS if you are part of a corporate group that includes one or more undertaking that meets the thresholds.
Change of status (two-year rule)
For an organisation to move from not being a large undertaking to being one it must meet either or both of criteria (1) and (2) for two successive accounting periods.
Similarly, to move from being a large undertaking to not being one, the undertaking must fail to meet both criteria for two successive accounting periods.
So if a change in the status of your organisation or group means that you cross either of the large enterprise qualifying thresholds (1) or (2), then the position must be sustained over two accounting periods to result in a recognised change of status.
If your employee numbers increase from 220 persons in year 1 to 260 persons in year 2 and 270 persons in year 3, then at the end of the year 3 accounting period your organisation is considered to be a large undertaking as it has exceeded the employee number threshold for a large enterprise over two consecutive accounting periods (years 2 and 3).
However, if in year 3 your employee numbers were instead to drop back down to below 250
persons, then your organisation would not be deemed to be a large undertaking at any time over the three years as the threshold had not been exceeded for two successive accounting periods.
The same principles apply to the criteria regarding organisational turnover and balance sheets.
Here employees include all contracted staff, owner managers and partners employed directly by the undertaking in the UK or abroad. Companies do not have to include employees of subsidiaries or other group undertakings based overseas.