Who Needs to Comply with ESOS? Understanding the Qualification Criteria

The Energy Savings Opportunity Scheme (ESOS) is a mandatory requirement for certain large organisations operating in the UK. However, not every organisation is required to participate.

Understanding whether your organisation qualifies for ESOS is an important first step. The qualification criteria are based primarily on the size of the organisation, its financial position and, in some circumstances, the structure of its corporate group.

In this blog, we explain who needs to comply with ESOS, the main qualification criteria and the options available to organisations that fall within or outside the scope of the scheme.

The Energy Savings Opportunity Scheme (ESOS) is an energy assessment and energy saving scheme established under the Energy Savings Opportunity Scheme Regulations 2014, as amended.

The scheme applies to large undertakings and groups containing large undertakings in the UK. An undertaking can include a corporate body or partnership, as well as certain unincorporated associations carrying on a trade or business.

For organisations that qualify, ESOS is a mandatory requirement. Organisations must complete the relevant requirements for the compliance phase and submit a notification of compliance.

Organisations that do not qualify are not required to participate, although they can choose to undertake an ESOS assessment voluntarily.

An organisation must participate in ESOS if it, or an undertaking within its corporate group, qualifies as a large undertaking on the relevant qualification date.

For Phase 4, the qualification date is 31 December 2026.

A UK undertaking is considered a large undertaking if it meets either or both of the following conditions:

• It employs 250 or more people, or
• It has an annual turnover exceeding £44 million and an annual balance sheet total exceeding £38 million.

The financial criteria require both the turnover and balance sheet thresholds to be exceeded. Employee numbers are also calculated according to specific ESOS rules, so organisations should not rely solely on a simple headcount taken on a particular day.

For ESOS purposes, employee numbers are calculated using the average number of people employed by the undertaking during the relevant accounting period.

Employees, owners or managers and partners can be included in the employee calculation where they meet the relevant definitions. Full-time and part-time status does not change whether someone is considered an employee for ESOS purposes.

For a UK-registered undertaking, employees contracted to the undertaking can include people working overseas. For an overseas undertaking with a UK establishment, different rules apply to determine which employees should be included.

This means organisations should ensure they are using the appropriate ESOS calculation rather than simply taking the number of employees currently on their payroll.

Meeting or falling below the thresholds in a single accounting period does not necessarily determine whether an organisation qualifies for ESOS.

Under the Phase 4 rules, an organisation generally retains its status as a large undertaking or small or medium undertaking until it has met the alternative status for two consecutive accounting periods.

This means organisations that have recently grown or shrunk, or that regularly move above and below the thresholds, may need to look back over several accounting periods to establish whether they qualify.

For example, an organisation that has historically exceeded the ESOS thresholds may still qualify even if it falls below them in its latest accounting period, if it has not remained below the thresholds for two consecutive accounting periods.

Equally, an organisation that has recently grown above the thresholds may not immediately qualify if it has not maintained large undertaking status for the required period.

Businesses that are close to the thresholds should therefore assess their position carefully rather than relying only on their most recent figures.

Corporate group structures are particularly important when determining whether ESOS applies.

If a corporate group contains at least one UK undertaking that meets the qualification conditions, the entire UK operation of that corporate group must participate in ESOS, subject to the rules governing corporate groupings and participation.

This means an individual company within a group may need to participate in ESOS even if that company would not qualify as a large undertaking when considered on its own.

By default, the highest UK parent undertaking acts as the responsible undertaking for the group. However, the group can choose another undertaking to take this role if the relevant requirements are met. Group undertakings can also, in certain circumstances, agree in writing to disaggregate for ESOS compliance.

Organisations that are part of a larger corporate group should therefore consider the structure of the wider group when determining whether ESOS applies.

Public bodies that meet the relevant definition are generally excluded from the scope of ESOS.

However, the position can be more complicated for organisations such as higher education institutions, where public or private status depends on factors including the source of funding.

For example, the current Phase 4 guidance states that ESOS applies to higher education institutions that self-declare as being in the private sector and meet the other qualification requirements.

Organisations that believe they may qualify as a public body should carefully review the relevant criteria before determining that they are outside the scope of ESOS.

ESOS can apply to overseas organisations with UK operations, but the rules depend on the organisation's UK establishment and corporate structure.

For example, an overseas organisation with UK energy supplies but no UK establishment employing at least 250 people will generally not need to participate unless another part of its global corporate group meets the ESOS qualification criteria in the UK.

UK-registered undertakings with overseas activities may also need to include certain overseas activities when assessing their turnover and balance sheet position.

For multinational organisations, it is therefore important to consider the specific structure of the organisation and its UK activities when determining whether ESOS applies.

For Phase 4, the ESOS qualification date is 31 December 2026. Organisations must determine whether they qualify based on the applicable ESOS criteria and accounting information around this date.

The Phase 4 deadline for submitting a notification of compliance is 5 December 2027.

Organisations that believe they may qualify should therefore establish their position well before the compliance deadline.

If your organisation qualifies for ESOS, participation is mandatory.

Qualifying organisations must identify their total energy consumption and areas of significant energy consumption, calculate relevant energy intensity ratios and consider the available routes to compliance. They must then complete the applicable assessment requirements, prepare their ESOS report and submit a notification of compliance.

For organisations following the ESOS energy audit route, the audit must cover all areas of significant energy consumption and identify energy-saving opportunities.

Phase 4 also introduces additional requirements following notification of compliance. Organisations must complete an ESOS action plan by 5 December 2028 and provide annual progress updates in 2029 and 2030.

Yes. ESOS assessments are not restricted to organisations that are legally required to participate.

An organisation that does not meet the ESOS qualification criteria can choose to undertake an assessment voluntarily.

A voluntary ESOS assessment can provide a structured way to examine energy use across an organisation and identify potential energy-saving opportunities. This can be useful for businesses that want greater visibility of their energy consumption or are looking to take a more systematic approach to energy efficiency.

For organisations that qualify for ESOS, ISO 50001 certification can be used as a deemed compliance route, subject to the requirements of the ESOS regulations.

ISO 50001 is an international standard for energy management systems. It provides a structured framework for organisations to establish, implement, maintain and continually improve their energy management system.

For ISO 50001 to be used as a deemed compliance route, the energy management system must be certified by a recognised IAF accredited certification body. Examples of recognised accreditation include UKAS and DAkkS.

This means that organisations with appropriately accredited ISO 50001 certification can use this as an alternative route to meeting their ESOS obligations, rather than relying solely on an ESOS energy audit. The certification must cover the relevant energy consumption in accordance with the ESOS requirements.

TÜV UK offers ISO 50001 certification for organisations looking to establish a structured approach to energy management and use certification as an ESOS compliance route.

Determining whether an organisation qualifies involves more than simply checking its employee numbers.

Businesses should consider:

1. Employee numbers – Does the organisation meet the 250-employee threshold using the ESOS calculation rules?
2. Financial position – Does it exceed both the £44 million turnover and £38 million balance sheet thresholds?
3. Accounting history – Has the organisation maintained large or small/medium undertaking status for the required two consecutive accounting periods?
4. Corporate structure – Is the organisation part of a larger corporate group containing a qualifying undertaking?
5. Organisation type – Is the organisation a public body or another type of undertaking that may be excluded?
6. UK operations – Does the organisation have UK establishments or activities that bring it within the scope of ESOS?
7. Qualification date – Does the organisation qualify on 31 December 2026?

Where there is uncertainty, organisations should review the official ESOS requirements and seek appropriate professional advice.

Whether ESOS is a mandatory requirement or a voluntary opportunity, an assessment can provide valuable insight into an organisation's energy consumption and potential opportunities for improvement.

For organisations that qualify, there are different routes available to meet the relevant ESOS requirements. This includes undertaking the required ESOS energy audit or, where the relevant conditions are met, using ISO 50001 certification as a deemed compliance route.

For organisations outside the scope of ESOS, a voluntary ESOS assessment can still provide a structured way to understand energy consumption and identify potential opportunities to improve energy efficiency.

Understanding whether your organisation qualifies and which compliance route is appropriate is an important first step.

Find out more about TÜV UK's ESOS assessment services and how we can support your organisation with its ESOS requirements.