Whether your company needs a statutory audit depends on its size, structure, and sector. The rules are set out in the Companies Act 2006, and they changed significantly in April 2025 when the UK raised the audit exemption thresholds. This guide explains who needs an audit, who qualifies for an exemption, and what happens at the boundaries.
Is a statutory audit a legal requirement?
Yes, for most companies above the size thresholds. The Companies Act 2006 requires all limited companies to have their annual accounts audited by a registered auditor unless they qualify for an exemption. The audit requirement also applies to limited liability partnerships (LLPs) that exceed the same thresholds.
The statutory audit isn’t optional for companies that meet the criteria. It must be carried out in accordance with International Standards on Auditing (UK), and the auditor must be registered with a recognised supervisory body such as the ICAEW or ACCA.
What are the current audit exemption thresholds?
Since 6 April 2025, a company qualifies for an exemption from audit if it meets two of the following three criteria in the relevant financial year:
- Annual turnover of no more than £15 million
- Balance sheet total of no more than £7.5 million
- No more than 50 employees (annual average)
These are the “small company” thresholds under the Companies Act 2006. Small companies that meet two of the following criteria qualify for the exemption. If your company exceeds two of these three limits, it must undertake a statutory audit and produce an audit report. The threshold test is applied to the financial year in question, and a company must qualify as small for two consecutive financial years before it can claim the exemption (or fail the test for two consecutive years before it loses it).
The old thresholds (£10.2m turnover and £5.1m balance sheet) applied to financial years starting before 6 April 2025.
Which companies must always have an audit?
Some companies need a statutory audit regardless of their size. Under the Companies Act 2006, the audit exemption is not available to:
- Public companies (PLCs), whether listed or not
- Companies authorised under the Financial Services and Markets Act – banks, insurance companies, and FCA-regulated firms
- Companies that are part of a group where the group as a whole exceeds the small group thresholds (£15m net turnover / £7.5m net assets, or £18m gross / £9m gross)
- Charities with gross income over £1 million, or assets over £3.26 million with income over £250,000
- Community interest companies (CICs) with turnover over £10.2 million
There are also sector-specific audit requirements. Solicitors’ practices that hold client money need an SRA Accountant’s Report. Pension schemes with 12 or more members need an independent auditor. Academy trusts need audited accounts under their funding agreement regardless of size.
Can a subsidiary company claim audit exemption?
Subsidiary companies can claim audit exemption under section 479A of the Companies Act 2006, but only if specific conditions are met:
- The parent company must guarantee the subsidiary’s liabilities
- All members of the subsidiary must consent to the exemption for the financial year
- The parent must notify Companies House of the guarantee
- The subsidiary must be included in consolidated group accounts that are audited
This is a useful provision for groups where the subsidiary itself is small but would otherwise need an audit because the group exceeds the thresholds. However, a shareholder holding 10% or more of the shares in any subsidiary company can still require an audit by giving written notice to the company at least one month before the end of the financial year.
What is the 10% shareholder audit requirement?
Even if your company qualifies as small and is technically exempt from statutory audit, any shareholder (or group of shareholders) holding at least 10% of the shares can require the company to be audited. The request must be made in writing and delivered to the company’s registered office at least one month before the end of the financial year in question.
This right exists to protect minority shareholders who want independent assurance over the financial statements. It cannot be overridden by the articles of association.
Do I need an audit if I’m close to the threshold?
If your company is near the audit threshold, you should consider whether an audit might be beneficial even if it’s not technically required. A voluntary audit can:
- Give banks and lenders confidence in your financial reporting
- Identify control weaknesses and accounting errors before they become problems
- Strengthen your position in acquisition or investment discussions
- Satisfy the requirements of a franchisor, licensor, or major customer
Companies that are growing towards the threshold often benefit from having an audit in place before it becomes mandatory. The first statutory audit is always easier if the auditor already knows your business and systems.
What happens if you no longer need an audit?
If your company previously exceeded the thresholds but now qualifies as small (for example, because the thresholds increased in April 2025 or because turnover has fallen), you can claim the exemption from audit for the first financial year in which you qualify.
You’ll need to include a statement on the balance sheet confirming that the company is entitled to the exemption from audit under section 477 of the Companies Act 2006, and that no shareholder has required an audit under section 476.
Even after claiming the exemption, many companies choose to continue with a voluntary audit because their bank, investors or other stakeholders expect audited accounts.
For detailed threshold figures, transitional rules and group calculations, see our complete guide to UK audit thresholds and exemptions.
Not sure? Talk to an auditor
The rules around audit exemption can be complicated, particularly for groups, subsidiaries, and companies in regulated sectors. If you’re not sure whether your company needs an audit, or whether you should have one even if you’re exempt, talk to a chartered accountant or registered auditor who can assess your specific situation.
At Audit Group, part of Jack Ross Chartered Accountants, we provide straightforward advice on audit requirements and financial reporting obligations. If you need an audit, we’ll quote a fixed fee and deliver the audit report on time. If you don’t qualify for the statutory audit requirement, we’ll tell you. Call 0161 832 4451 or request a proposal below.
