Do You Qualify for ESOS Phase 4?

The short answer. You qualify if, on 31 December 2026, you employ 250 or more people, or have both a turnover above £44 million and a balance sheet total above £38 million. Corporate groups qualify if any one UK member does.

ESOS applies to large UK undertakings and to corporate groups containing at least one large UK undertaking. Whether you qualify is a question of fact assessed on a single date, and getting the answer wrong in either direction is expensive.

The thresholds

The Phase 4 criteria are unchanged from Phase 3, and the guidance published on 22 July 2026 confirms them. A UK undertaking qualifies if, on the qualification date, it either:

• employed 250 or more people; or
• had both an annual turnover above £44 million and an annual balance sheet total above £38 million.

The most common error. Note the "and" in the second test. Turnover alone above £44 million does not bring you into scope. Both financial thresholds must be met. This mistake appears on a surprising number of consultancy websites, and acting on it either way is costly.

The government decided not to proceed with aligning the Phase 4 thresholds with Streamlined Energy and Carbon Reporting, so the two schemes continue to use different tests. Other parts of the scheme did change: see ESOS Phase 3 vs Phase 4.

The date that matters: 31 December 2026

Qualification is assessed on the qualification date, not on your position when the assessment happens.

An organisation that crosses the threshold in November 2026 is in scope. One that falls below it in early 2027 is still in scope, because the test was already met. Planning around your current headcount rather than your headcount on the qualification date is a reliable way to be caught out.

Corporate groups

This is where most surprises happen.

A corporate group qualifies if at least one UK group member meets the definition of a large undertaking. That brings the whole group into scope, including small subsidiaries that would never qualify alone.

UK establishments of overseas companies can also be drawn in through their wider UK corporate group. An overseas parent with several modest UK entities may find those entities aggregate into a qualifying group.

If your organisation sits inside a group, the qualification question cannot be answered by looking at your own accounts.

Situations that complicate the answer

• You are close to a threshold, on either headcount or the financial tests
• Companies have joined or left the group during the year
• There have been acquisitions, disposals or insolvency proceedings
• An overseas parent has several UK establishments
• Your accounts cover an unusual period
• You qualified in an earlier phase but have since changed size

In any of these, the answer is worth establishing properly rather than assuming. A decision that you do not qualify, made informally and never documented, is difficult to defend if a regulator asks.

What counts as an employee

Headcount is based on the number of employees, and the counting rules matter where you are near the threshold. Part-time staff, seasonal workers and how you treat individuals employed across group companies can all move the number. If you are within reach of 250 either way, this is worth checking rather than estimating.

If you do qualify

You will need to measure total energy consumption across buildings, industrial processes and transport, identify the areas representing at least 95% of it, complete compliant audits or use an alternative route such as ISO 50001, have the assessment reviewed by a registered Lead Assessor, obtain board-level approval and notify the Environment Agency by 5 December 2027.

Our ESOS assessment guide sets out what that involves in practice.

If you do not qualify

Write the decision down. Document the figures it was based on and the date. If a regulator asks why you did not notify, a contemporaneous record is a considerably better answer than a recollection. Then diarise the question, because qualification is reassessed each phase and organisations that grow past the threshold often do not notice.

Where to go next

For the full picture, see our ESOS guide or the key dates. If you want a qualification position established and documented, see our ESOS compliance services.