Not every UK company needs a statutory audit. The Companies Act sets out specific company size thresholds, and if your company falls below them, you may be entitled to exemption from audit. But the rules aren’t as simple as checking your turnover against a single number. Company size and audit exemption involve several conditions that interact with group structures, shareholder rights, and the nature of your business.
Here’s what you need to know about the current UK statutory audit thresholds, the qualification criteria for audit exemption, and what happens when you cross the line.
Current audit exemption thresholds
A company qualifies as “small” under current legislation and is exempt from an audit if it meets at least two of these three conditions in a financial year:
- Annual turnover of no more than 10.2 million
- Balance sheet total of no more than 5.1 million
- No more than 50 employees on average
New thresholds took effect on 6 April 2025 for financial years starting on or after that date. The monetary size threshold figures above apply to the new regime. Assume that the new thresholds were applicable from 6 April 2025 and plan accordingly.
The thresholds have increased for the first time since 2016, when the UK government raised them to align with EU directives. The changes to the thresholds aim to reduce the reporting burden on companies that are genuinely small, while keeping audit requirements in place for larger businesses.
A company must meet two out of three conditions for two consecutive years. If you’ve just crossed a threshold for the first time, you don’t necessarily lose your exemption immediately – your previous financial year matters too.
Who can’t claim audit exemption?
Even if a company meets the size criteria, certain types can never claim that the company is exempt. These include:
- Public companies (PLCs), whether traded or not
- Companies that are authorised insurance companies or carry on insurance market activity
- Banking companies or companies involved in e-money issuance
- MiFID investment firms or companies trading on a UK regulated market
- UCITS management company or similar regulated entities
- Companies where shareholders holding at least 10% of shares have requested an audit
- Any company that is part of an ineligible group under the Act
The last point is worth flagging. Even a small company with turnover well below the audit threshold can be forced into a full audit if a minority shareholder demands one. We’ve seen this happen in shareholder disputes.
Subsidiary audit exemption
The statutory audit requirements for UK subsidiaries changed significantly in recent years. Previously, most subsidiaries of groups that exceeded the small companies thresholds needed their own annual audit. UK company law now allows dormant subsidiaries and certain qualifying subsidiary companies to claim exemption provided their UK parent company guarantees their liabilities under section 479A.
For a subsidiary company to claim this exemption, the parent must provide a statutory guarantee. The subsidiary must not be excluded from the exemption (for example, by being a traded company, an authorised insurance company, or part of a group that requires an audit under financial reporting requirements).
If your UK group structure includes multiple subsidiaries, review which entities are actually required to be audited. An audit will still be required for certain regulated subsidiaries regardless of size. Our audit team regularly helps groups restructure their audit requirements to reduce costs without losing the assurance that matters.
Determining company size for audit purposes
When determining company size, you apply the thresholds for audit at the individual company level first. But if your company is part of a group, the group size also matters.
A group qualifies as small if it meets at least two of these three conditions on a consolidated basis:
- Aggregate turnover of no more than 10.2 million net (or 12.2 million gross)
- Aggregate balance sheet total of no more than 5.1 million net (or 6.1 million gross)
- Aggregate number of employees no more than 50
The net figures apply after consolidation adjustments. A group that exceeds these thresholds will typically need a group audit. Understanding company size thresholds at both individual and group level is essential for audit planning.
What happens when you first need an audit?
Crossing the threshold for the first time doesn’t have to be painful. You’ll need to appoint a registered auditor, make sure your accounting records are in order, and understand the audit process. The preparation of accounts to audit-ready standard is key.
We’ve put together a separate guide on preparing for your first statutory audit that covers the practical steps. Early engagement with your audit team makes a new audit much less disruptive.
Should you audit voluntarily?
Some private limited companies that technically qualify for exemption still choose to have an audit. This is common when:
- Banks or lenders require an audit report and audited accounts as a lending condition
- The company is preparing for sale and buyers want audited financial statements
- Multiple shareholders want independent assurance over the accounts
- The company operates in a regulated industry where a UK audit adds credibility
A voluntary audit costs money, but it can surface problems early and give directors comfort. Sometimes audit and assurance services deliver value well beyond complying with the requirements of the Act with respect to accounting and reporting. It’s not always about compliance – good financial reporting matters for your year end planning too.
Getting the right advice
The audit exemption rules interact with group structures, company law, shareholder rights, and industry-specific regulations in ways that aren’t always obvious. Companies subject to specific regulatory requirements may require an audit regardless of size. If you’re not sure whether your company requires a statutory audit, or if you’ve just crossed the threshold, our audit team can help.
Call us on 0161 832 4451 or request a callback.
