What must happen to the £10 million limit if the accounting period is less than 12 months?

The correct answer addresses how the £10 million limit is treated when the accounting period is shorter than 12 months. Specifically, when an accounting period is less than 12 months, the £10 million limit is scaled down. This adjustment is necessary because the limit is designed to reflect financial performance over a standard annual period, and a shorter period naturally warrants a corresponding reduction in thresholds for compliance or eligibility assessments.

Scaling down the limit involves dividing it by the proportionate length of the accounting period in terms of months relative to a 12-month year. This ensures that the limit remains appropriately aligned with the actual operating time frame being reported.

The other choices do not accurately reflect how the limit should be applied in relation to a reduced accounting period. For instance, stating that the limit is not applicable ignores the requirement for adherence to limits based on the period's specific circumstances. Similarly, suggesting it could be adjusted based on operating days doesn't align with established accounting practices for such limits, and the idea that it would be automatically increased regresses from logical financial management principles, as a standard limit should not be inflated for shorter durations without justification.