Do I need an audit?

Current audit thresholds (for financial years commencing on or before 5 April 2025)

Companies are exempt from an audit in the UK…

• If you are a company that qualifies as a small company under Companies Act 2006 (unless you are a member of a group, or a charity, that is required to follow the charity audit thresholds). A company is classed as small, if for both this year and last year, it met two out of three of the following criteria:

• If you are a subsidiary within a group meeting certain criteria and if the parent company provides a guarantee of all outstanding liabilities at the end of the financial year.
• If you are a charity with gross income of £1 million or less and an accounting period ending on or after 31 March 2015 (or £500,000 or less for accounting periods before this) unless both your gross assets exceed £3.26m and your gross income exceeds £250,000, you can choose to opt out of a full audit. Though if your income is between £25,000 and £1 million you will still be required by the Charities Commission to obtain an alternative assurance service.
• Please note that there were different company size thresholds for financial years beginning before 1 January 2016. For these years a company was classed as small and exempt from being audited, if for both the current and prior year, it met two out of three of the following criteria: Turnover not more than £6.5m, total assets not more than £3.26 and employees not more than 50.

New audit thresholds (for financial years commencing on or after 6 April 2025)

Companies are exempt from an audit in the UK…

• The table below sets out the new company size thresholds. A company is classed as small and therefore can apply an audit exemption, if for both this year and last year, it met two out of three of the following criteria:

• If you are a subsidiary within a group meeting certain criteria and if the parent company provides a guarantee of all outstanding liabilities at the end of the financial year. However, the parent company guarantee now only works if there is a UK parent company (previously it allowed for EU parent companies so was a much wider exemption). Also, if the group on consol exceeds the limits you cannot apply an audit exemption – which will impact many worldwide groups.
• If you are a charity with gross income of £1 million or less and an accounting period ending on or after 31 March 2015 unless both your gross assets exceed £3.26m and your gross income exceeds £250,000, you can choose to opt out of a full audit. Though if your income is between £25,000 and £1 million you will still be required by the Charities Commission to obtain an alternative assurance service.

No delay for implementing audit exemption

The legislation includes a transitional provision that allows preparers to treat the amendments as having been applied in the previous financial year when determining a particular company size. This relaxes the so-called ‘two-year consecutive rule’, which requires size thresholds to change only when the company has met those thresholds in two successive financial years. As a result, companies and LLPs can benefit from the threshold uplift as soon as possible after the legislation comes into force.

However, there are circumstances where an audit may be required for a small company. This can include being part of a group, or an audit being required by the company’s bank or shareholders. Therefore, the changes in audit thresholds may not necessarily mean an audit is not required for all companies.