ESOS · Qualification
ESOS thresholds: who qualifies for Phase 4
The ESOS thresholds for Phase 4 are tested at a single date, 31 December 2026.
Under Schedule 1 to the ESOS Regulations 2014, an undertaking qualifies if it employs at least 250 people, or if its annual turnover exceeds £44 million and its annual balance sheet total exceeds £38 million.
The test
ESOS qualification criteria: the two routes
An undertaking is “large” for ESOS Phase 4 if, at 31 December 2026, it meets either route.
Note the OR between the routes and the AND inside the financial route.
Route 1: the employee test. An undertaking qualifies if it employs at least 250 people, regardless of the financial figures.
The test is applied undertaking by undertaking; group members are then brought in by the group rule, not by adding headcounts together.
Route 2: both financial tests. An undertaking qualifies if annual turnover exceeds £44 million and annual balance sheet total exceeds £38 million, based on its most recent annual accounts.
Note the drafting: “at least” 250 employees, but “in excess of” the money limbs — the asymmetry is in the instrument (Schedule 1, paragraph 1).
Schedule 1 also carries a retention rule: an undertaking that has been large keeps that status until it has met the small-or-medium definition for two consecutive accounting periods.
So a single year below the figures does not take you out of scope.
The figures have been in sterling since 31 December 2020 and were not changed by SI 2026/701.
If you already know you are in, the ESOS compliance checklist takes you from qualification to notification; if you are still asking whether you must comply, start with is ESOS mandatory?
Route 1 · Employees
OR
Route 2 · Both financial limbs
Turnover
AND
Balance sheet total
Not a large undertaking — unless you are a group undertaking of one on 31 December 2026.
Test by test
How each threshold is measured
| Test | Threshold | Scope | Calculation | Notes |
|---|---|---|---|---|
| Employee test | At least 250 persons employed | The individual undertaking | Employees, owners or managers, and partners, whatever their hours | Qualifies on its own, regardless of the financial figures — exactly 250 qualifies |
| Turnover test | In excess of £44 million | Annual turnover of the undertaking | Most recent annual accounts period | Must be exceeded together with the balance sheet test — exactly £44m does not qualify |
| Balance sheet test | In excess of £38 million | Annual balance sheet total of the undertaking | Most recent annual accounts period | Must be exceeded together with the turnover test |
Alignment of the ESOS qualification thresholds with SECR was proposed, but it did not happen: SI 2026/701 left Schedule 1 untouched.
GOV.UK’s February 2025 “Phase 4 changes” bulletin said the change would not go ahead for Phase 4; the page was rewritten on 2 September 2026 and no longer mentions it, or any Phase 5 plan for it.
The two regimes do not share a threshold, and any page telling you they do is wrong.
SECR’s test is an exemption: a company is exempt where it meets two or more of turnover not more than £36m, balance sheet total not more than £18m, and not more than 250 employees.
ESOS uses the higher and differently structured test above — the SECR size test is set out in full on its own page, and the two regimes are compared in ESOS vs SECR.
The date
The qualification date: 31 December 2026
Your organisation’s status on 31 December 2026 determines whether you are in scope for the entire Phase 4 cycle, whatever changes after it.
Changes before it are not a clean break: the Schedule 1 retention rule can keep an undertaking large for two accounting periods after it shrinks.
Why 31 December 2026?
The date is not chosen phase by phase — it comes from a formula in regulation 4 of the 2014 Regulations.
Each compliance period runs from 6 December to the 5 December four years later, and the compliance date is the 5 December on which the period ends.
The qualification date is “the 31st December immediately preceding the compliance date”.
For Phase 4 (6 December 2023 to 5 December 2027) that gives a compliance date of 5 December 2027 and a qualification date of 31 December 2026 — roughly eleven months to comply once your position is fixed.
These dates are tabulated in the Environment Agency’s Phase 4 guidance, published 30 July 2026.
The third progress update is new in Phase 4, added by SI 2026/701 regulation 28.
Every date from qualification to the final progress update is on the Phase 4 deadline and timeline page.
What happens after qualification
- 5 Dec 2026Phase 3 Progress Update 2
A live obligation for organisations that notified in Phase 3.
- 31 Dec 2026Phase 4 qualification date
Your position is fixed.
- Through 2027Energy audit with a Lead Assessor
- 5 Dec 2027Phase 4 compliance notification deadline
Regulation 4(4)(b).
- 5 Dec 2028Phase 4 Action Plan
Covering 6 December 2027 to 5 December 2031.
- 5 Dec 2029–31Three progress updates
5 December 2029, 2030 and 2031.
- Phase 56 Dec 2027 – 5 Dec 2031
On the regulation 4 formula: qualification date 31 December 2030, compliance date 5 December 2031.
Groups
Group rules and the responsible undertaking
If any single UK undertaking in your group is a large undertaking on the qualification date, the group’s other UK undertakings are in scope too (regulation 15(1)(b)).
This applies even if those other group companies are individually sub-threshold.
What counts as a group?
- Parent–subsidiary relationships: parent undertaking takes its Companies Act 2006 meaning — regulation 17(3) borrows section 1162.
- Controlling influence: where a company can direct operating and financial policies.
- Common control: multiple entities under the same ultimate parent company.
- UK scope: UK undertakings count, and a UK registered establishment of an overseas company must take part if any other part of its global group’s UK activities meets the qualification criteria.
The responsible undertaking
- One participant: UK group undertakings with a common highest parent comply as one participant (regulation 17(2)).
- Group-wide coverage: the assessment covers the whole participant, not only the undertaking that crossed the threshold.
- Disaggregation: regulation 17(2) allows the group to split only where Schedule 2 provides for it.
- Accountability: the duties fall on the “responsible undertaking” for the participant, and a responsible officer confirms the notification.
Structural change
Acquisitions, divestments and reorganisations
What matters is the structure on 31 December 2026, not the structure on the day you notify.
Acquired before 31 December 2026: counts
Include in the employee count and add to the financial thresholds.
Must be included in the energy audit scope.
Historical energy data may be limited.
Sold before 31 December 2026: does not count
Exclude from the employee count and remove from the financial thresholds.
No audit requirement for divested entities.
May affect overall qualification status.
Internal restructuring may change qualification
May create or remove ESOS obligations without affecting the underlying business.
Consider timing relative to 31 December 2026; legal entity structure affects the outcome.
Seek advice before major changes.
Deemed compliance
ISO 50001: the deemed-compliance route
Where ISO 50001 certification covers an organisation’s total or significant energy consumption, the participant is deemed to have complied with the duties to appoint a lead assessor, carry out the ESOS energy audit and produce the ESOS report.
What the certification has to cover
- Total or significant consumption: significant means the areas making up at least 95% of total energy consumption, with up to 5% de minimis — measured in energy units or by energy spend (regulation 25(2)), under the test in new regulation 33(2A).
- All sites and subsidiaries within the certified scope.
- Still notify: ISO 50001 discharges the audit duties, not the notification of compliance.
- Current certification: ISO 50001 certificates must be valid at the compliance deadline, issued on or after 6 December 2023, and issued by a UKAS-accredited body, an EU national accreditation body or a member of the International Accreditation Forum.
The hybrid route: ISO 50001 plus audit
- Partial coverage: ISO 50001 covers some but not all energy consumption.
- Audit the remainder: a traditional ESOS audit is required for uncovered consumption.
- Lead Assessor required for the audit portion.
- Combined reporting: a single compliance notification covers both routes.
Exclusions
Who is out of scope
| Case | Position |
|---|---|
| Public sector bodies | GOV.UK's guidance states that public sector organisations do not usually need to comply; section 1.2 of the Environment Agency's Phase 4 guidance sets out who is excluded. |
| Sub-threshold organisations | Undertakings that meet neither the employee test nor both financial tests, and are not group undertakings of one that does. |
| Insolvency | Under regulation 16 as widened by SI 2026/701 regulation 6, an undertaking in insolvency proceedings at any point between the qualification date and the compliance date is excluded, as are the solvent small or medium group undertakings of an insolvent large undertaking — unless another large undertaking in the group is solvent. |
| Zero energy consumption — not an exclusion | A large undertaking or group member with zero kWh still qualifies. Under new regulation 33A it is deemed to have complied with the assessment, lead assessor and action plan duties, but must still submit a notification of compliance. |
Next steps
What to do this quarter if you think you’re in scope
Or if you are unsure — the work below settles the question as well as starting the programme.
Immediate actions
- Group mapping: identify all UK group companies and their current employee counts.
- Financial review: pull the latest annual accounts for turnover and balance sheet figures.
- ISO 50001 check: review current energy management certifications and their coverage.
- Legal review: engage legal counsel if group structure changes are being considered.
Planning actions
- Lead Assessor research: identify qualified advisers using our consultant selection criteria, obtain quotes and check which approved register they hold — the Institution of Chemical Engineers was removed from the approved registers for ESOS lead assessors on 16 February 2026, so an IChemE-registered assessor needs to show current standing on another approved register.
- Energy data audit: review the availability and quality of historical energy consumption data.
- Budget planning: allocate budget for the ESOS assessment.
- Governance: establish project governance and assign internal responsibility.
If you are likely to qualify, start planning now.
The market for Lead Assessor services becomes constrained as the deadline approaches, and energy audits require significant preparation time.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner. Secondary commentary is never the source for a number.
- legislation.gov.ukESOS Regulations 2014, Schedule 1 (via regulation 15(2))
The definition of a large undertaking — at least 250 persons, or turnover in excess of £44m and balance sheet total in excess of £38m (paragraphs 1 and 1A) — and the two-period retention rule.
- legislation.gov.ukESOS Regulations 2014, regulation 15 — relevant undertakings
A large undertaking, or a small or medium undertaking that is a group undertaking of one, is a relevant undertaking on the qualification date.
- legislation.gov.ukESOS Regulations 2014, regulation 4 — compliance periods
The formula behind every phase’s dates: the 6 December to 5 December period, the compliance date and the qualification date.
- legislation.gov.ukESOS (Amendment) Regulations 2023 (SI 2023/1182)
The 95% coverage rule and the action plan structure, both from Phase 3.
- legislation.gov.ukESOS (Amendment) Regulations 2026 (SI 2026/701)
In force 22 July 2026. Removes DECs and GDAs and adds the third progress update; it did not change the qualification thresholds.
- GOV.UKEnergy Savings Opportunity Scheme (ESOS) — guidance
Environment Agency guidance, including the 16 February 2026 removal of IChemE from the approved lead assessor registers.
- Environment AgencyComply with the Energy Savings Opportunity Scheme (ESOS) phase 4
Published 30 July 2026: Phase 4 qualification, the 31 December 2026 qualification date and the 5 December 2027 compliance deadline.
- legislation.gov.ukESOS Regulations 2014, regulation 17 — participants
A highest parent group complies as one participant; parent undertaking takes its Companies Act 2006 section 1162 meaning.
- legislation.gov.ukESOS Regulations 2014, regulation 25 — significant energy consumption
Areas of significant energy consumption: not less than 95% of the total, measured in energy units or by energy spend.
- legislation.gov.ukESOS Regulations 2014, regulation 33A — zero energy consumption
Inserted from 22 July 2026: a zero-kWh participant is deemed to have complied with the assessment and action plan duties.
- legislation.gov.ukSI 2026/701, regulation 24 — the ISO 50001 route
New regulation 33(2A): ISO 50001 over total or significant consumption.
- legislation.gov.ukSI 2026/701, regulation 6 — the insolvency exclusion
Widens regulation 16 to insolvency at any point between the qualification date and the compliance date.
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