UK Audit Thresholds and Exemptions
Not every UK company needs a statutory audit. Under the Companies Act 2006, small companies that qualify as small can claim exemption – but the rules around size thresholds, group structures, and regulated sectors catch more businesses than you’d expect. And from 6 April 2025, the company size thresholds have changed for the first time in nearly a decade.
This guide covers the current audit threshold limits, who needs one, the new thresholds from April 2025, and when a voluntary audit still makes sense – even if your company qualifies for an exemption.
What is a statutory audit?
A statutory audit is an independent examination of a company’s financial statements, carried out by a registered auditor. The process produces an auditor’s report that gives shareholders and other stakeholders confidence the accounts present a true and fair view. It’s a legal requirement for companies that exceed certain size thresholds or operate in regulated industries.
The rules on who needs one sit in Part 16 of the Companies Act 2006. Companies House requires the auditor’s report to be filed alongside the annual accounts.
Do you need an audit? The three thresholds
Whether a company needs one depends primarily on its size. A company must exceed at least two of the three thresholds in the year in question to be caught. If it meets two or fewer, it may qualify for exemption under the small companies regime.
The three thresholds are:
- Annual turnover
- Balance sheet total (total gross assets)
- Average number of employees
A company that stays below at least two of these limits at the end of the financial year is usually exempt. But if it breaches two or more, it will require an audit for that period.
New audit exemption thresholds from April 2025
The limits changed on 6 April 2025, following The Companies (Accounts and Reports) (Amendment) Regulations 2024 (SI 2024/1298). These are the first changes to the size thresholds since 2016, and they’re significant. The new thresholds apply to financial years beginning on or after 6 April 2025.
Here’s how the old and new thresholds compare:
| Threshold | Before 6 April 2025 | From 6 April 2025 |
|---|---|---|
| Annual turnover | £10.2 million | £15 million |
| Balance sheet total | £5.1 million | £7.5 million |
| Average employees | 50 | 50 |
The employee threshold hasn’t changed. But the turnover and balance sheet limits have both increased by roughly 50%. In practice, this means a significant number of UK companies that previously needed one will now qualify as small companies under the Companies Act 2006. Companies House estimates around 13,000 additional companies will become exempt.
The two-year consecutive rule
One detail that catches directors out: the exemption eligibility rules use a two-year test. A company that exceeds the thresholds in one financial year doesn’t automatically lose its exemption. It only has to have an audit if it exceeds the limits in two consecutive years.
The same principle works in reverse. If a company drops below the thresholds, it won’t qualify for exemption until it has been below them for two consecutive years. So the first year a company shrinks below the limits, an audit will still be required. The exemption kicks in from the second year.
There’s one exception: a newly incorporated company that qualifies as small in its first financial year can claim exemption immediately. It doesn’t need to wait for a second year.
Group audit rules – does your group need an audit?
If your company is part of a group, the rules are more complex. The group must also qualify as small for members of a group to claim audit exemption. The group size thresholds (on a gross basis, before consolidation adjustments) are:
| Group threshold (gross) | Before 6 April 2025 | From 6 April 2025 |
|---|---|---|
| Aggregate turnover | £12.2 million | £18 million |
| Aggregate balance sheet total | £6.1 million | £9 million |
| Aggregate employees | 50 | 50 |
If the group exceeds two of these three group size thresholds, individual subsidiary companies within it can’t qualify as small. Even a tiny subsidiary with minimal turnover may require a statutory audit if the wider group of companies is too large.
Groups can also use net figures (after consolidation adjustments) instead of gross. The net thresholds are slightly lower but may suit groups with significant intra-group transactions.
Subsidiary audit exemption under s479A
There’s a separate route for UK subsidiaries that are part of larger groups. Under s479A of the Companies Act, a subsidiary company can claim exemption even if it doesn’t qualify as small – provided certain conditions are met.
For the subsidiary audit exemption to apply:
- The parent company must guarantee all the subsidiary’s outstanding liabilities at the end of the financial year (under s479C)
- The parent company provides a written notice of the guarantee to Companies House
- The subsidiary is included in the consolidated accounts of the parent
- The consolidated accounts and auditor’s report are filed at Companies House
- The members of the subsidiary haven’t served notice to request an audit (under s476)
This route works for UK subsidiaries of both UK parent company groups and foreign parents. If the UK parent is established under UK law, the consolidated accounts follow UK GAAP or IFRS. For an overseas parent, the accounts must be prepared to an equivalent standard.
The s479A route is particularly useful for large groups with many dormant or low-activity entities. It can save thousands of pounds in fees. But the parent takes on a real financial commitment through the guarantee, so it’s not a decision to make lightly.
Companies that must have an audit regardless of size
Some companies can never claim exemption, no matter how small they are. Under UK law, the following must always undertake an audit:
- Public companies (PLCs) traded on a UK regulated market
- Banking companies, insurance companies, and e-money issuers
- A company that is an authorised person under the Financial Services and Markets Act 2000 (FCA-regulated firms)
- Companies whose articles of association mandate an audit
- Companies where shareholders holding at least 10% of shares (by number or nominal value) request an audit
Traded companies and FCA-regulated businesses are the ones most commonly affected. If you’re a member of an ineligible group that includes any of these entity types, no company in that group is exempt from audit.
Dormant company exemption
A dormant company is exempt under s480 if it has had no significant accounting transactions during the period. “Significant” excludes shares taken by subscribers and fees paid to Companies House for filing.
This is separate from the small company route – a dormant company doesn’t need to meet the size thresholds at all. But it can’t be a PLC, a member of an ineligible group, or an FCA-regulated entity.
LLP and charity audit thresholds
Limited Liability Partnerships (LLPs) follow similar requirements to companies. The same size thresholds apply, and the two-year consecutive rule works the same way. LLPs file at Companies House and must include an audit report if they exceed the limits.
Charities have their own charity audit thresholds, set by the Charities Act 2011 rather than the Companies Act. A charitable company with gross income over £1 million, or gross income over £250,000 and gross assets over £3.26 million, must have one. Below these levels, an independent examination may be sufficient. The Charity Commission has different reporting tiers, so it’s worth checking which level applies to your organisation.
When should you consider a voluntary audit?
Just because a company is exempt from an audit doesn’t mean it shouldn’t have one. There are several situations where a voluntary audit adds real value:
- Bank lending and credit facilities. Lenders often require audited accounts before approving loans or extending credit lines. An unaudited set of accounts may not satisfy their due diligence requirements.
- Investor confidence. If you’re looking to attract investment, audited financial statements carry more weight. Investors want independent assurance that the numbers are reliable.
- Approaching the thresholds. If your company is close to breaching the limits, getting a voluntary audit now prepares you for the transition. It also means your audit team already understands your business.
- Fraud and error detection. The audit process picks up control weaknesses, errors, and irregularities that internal reviews might miss. For owner-managed businesses with limited finance resource, this independent check is valuable.
- Selling or restructuring the business. Buyers and their advisers will want audited accounts as part of due diligence. Having them ready speeds up the deal.
- Grant funding and contracts. Some public sector contracts and grant-making bodies require audited accounts as a condition of eligibility.
A voluntary audit doesn’t have to follow the full ISA framework if it’s not legally required, though most firms will still work to ISA standards for consistency. The cost is a fraction of what you’d pay if forced into it at short notice.
How to check whether your company qualifies for exemption
Working out whether a company qualifies for an exemption isn’t always straightforward. Here’s a quick checklist:
- Is your company a PLC, banking company, insurance company, or FCA-regulated? If yes, no exemption is available.
- Is your company part of a group? If yes, check the group size thresholds too – not just the individual company’s figures.
- Does your company exceed two of the three size thresholds? Check turnover, balance sheet total, and average employees.
- Has it exceeded those thresholds for two consecutive years? Remember the two-year rule.
- Have shareholders representing 10% or more made a formal request?
- Do your articles of association require one?
If you’re using an audit exemption, you’ll need to include a statement on your balance sheet confirming that the company was entitled to exemption from audit for the year in question.
What happens when the new thresholds take effect?
The new thresholds apply to periods starting on or after 6 April 2025. For most UK companies with a March or December year-end, this means the higher limits will first apply to the year ending March 2026 or December 2025 respectively.
If your company previously exceeded the old thresholds but falls within the new ones, you won’t automatically become exempt straight away. The two-year consecutive rule still applies to the previous financial year. In practice, most companies in this position will become eligible from their second year under the new limits.
Directors should review their position now to understand the impact. If your company may qualify under the new thresholds, consider whether dropping the audit is actually in your best interest, or whether the benefits of keeping it outweigh the cost saving.
Talk to our audit team
Whether you need a statutory audit or you’re weighing up the value of a voluntary one, our audit services team can help. We work with businesses across the UK – from owner-managed companies approaching the thresholds to subsidiaries looking to qualify for audit exemption from their group.
If you’re unsure about your audit requirements, we’ll review your situation and give you clear, practical advice. No jargon, no hard sell.
Learn more about our statutory audit services
Find out about voluntary audits and when they make sense
Or call us on 0161 832 4451 to speak to one of our audit team directly.
