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(1) Subject to the following provisions of this section, a company shall qualify to be treated as a small or (as the case may be) as a medium-sized company for the purposes of the accounting exemption provisions in respect of any financial year of the company if in respect of that year and the financial c. 62 Companies Act 1981 year immediately preceding that year the company satisfies any two or more of the qualifying conditions specified in subsection (2) or (3) below (as the case may require). (2) The qualifying conditions for a company to be treated as a small company are as follows— (a) the amount of its turnover must not exceed £1,400,000 ; (b) its balance sheet total must not exceed £700,000 ; and (c) the average number of persons employed by the company in the financial year in question (determined on a weekly basis) must not exceed fifty. (3) The qualifying conditions for a company to be treated as a medium-sized company are as follows— (a) the amount of its turnover must not exceed £5,750,000 ; (b) its balance sheet total must not exceed £2,800,000 ; and (c) the average number of persons employed by the company in the financial year in question (determined on a weekly basis) must not exceed two hundred and fifty. (4) References below in this section to a company’s satisfying the relevant qualifying conditions are references to its satisfying any two or more of the conditions mentioned in subsection (2) or (3) above (as the case may require). (5) Subject to subsection (6) below, a company which qualifies by virtue of this section to be treated as a small or (as the case may be) as a medium-sized company for the purposes of the accounting exemption provisions in respect of any financial year shall not cease to be so qualified in respect of the next following financial year by virtue of failing to satisfy the relevant qualifying conditions in respect of that year. (6) A company which qualifies by virtue of subsection (5) above to be treated as there mentioned in respect of any financial year may not qualify to be so treated by virtue of that subsection in respect of the next following financial year; but any such company may qualify to be so treated in respect of the next following financial year if it satisfies the relevant qualifying conditions in respect of that year (notwithstanding that it did not satisfy those conditions in respect of the previous year). (7) A company which is incorporated on or after the appointed day shall qualify to be treated as a small or (as the case may be) aS a medium-sized company for the purposes of the accounting exemption provisions in respect of its first financial year if it satisfies the relevant qualifying conditions in respect of that year. Companies Act 1981 c. 62 (8) A company which was incorporated before that day shall qualify to be so treated in respect of the first financial year of the company in respect of which the accounts of the company prepared under section 1 of the 1976 Act are prepared in accordance with Schedule 8 to the 1948 Act, as it has effect by virtue of this Part of this Act, if it satisfies the relevant qualifying conditions in respect of either— (a) that first financial year ; or (b) the financial year immediately preceding that year ; but if it qualifies to be so treated by virtue of paragraph (bd) above it shall be treated for the purposes of the application of this section to subsequent financial years as if it had qualified to be so treated in respect of that first financial year by virtue of subsection (5) above. (9) In this section “ balance sheet total ”’ means, in relation to any financial year of a company— (a) where Format 1 of the balance sheet formats set out in Part I of Schedule 8 to the 1948 Act is adopted by the company, the aggregate of the amounts shown in the company’s balance sheet for that year under headings corresponding to items A to D in that Format; and (b) where Format 2 of those formats is adopted by the company, the aggregate of the amounts so shown under the general heading “ Assets ”. (10) For the purposes of subsections (2)(c) and (3)(c) above, the average number of persons employed by a company as there mentioned shall be determined by applying the method of calculation prescribed by paragraph 56(2) and (3) of Schedule 8 to the 1948 Act for determining the number required by subparagraph (1)(a) of that paragraph to be stated in a note to a company’s accounts. (11) In the application of this section to any period which is a financial year of a company but not in fact a year, the maximum figures for turnover in subsections (2)(a) and (3)(a) above shall be proportionately adjusted. (12) For the purpose of determining for the purposes of subsection (8)(b) above whether a company satisfies the relevant qualifying conditions in respect of a financial year in a case where the accounts of the company in respect of that year prepared under section 1 of the 1976 Act are not prepared in accordance with Schedule 8 to the 1948 Act as it has effect by virtue of this Part of this Act, subsection (9) above shall be read as referring to the aggregate of any amounts included in the company’s balance sheet for that year which correspond to the amounts mentioned in paragraph (a) or (b) of that subsection. c. 62 Companies Act 1981