Your business may no longer need a statutory audit: what the higher thresholds mean

For financial years beginning on or after 6 April 2025, the monetary thresholds used to determine whether a UK company is small increased substantially. A company will generally qualify as small if it meets at least two of three conditions: turnover of no more than £15 million, a balance sheet total of no more than £7.5 million, and an average of no more than 50 employees. A qualifying small company can usually claim the Companies Act audit exemption, although important exclusions still apply.

What actually changed

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 raised the monetary thresholds for micro, small and medium-sized companies and groups. The employee limits did not change.

The previous small-company limits were £10.2 million turnover and £5.1 million balance sheet total, while the medium-sized limits were £36 million and £18 million. The new rules apply to financial years beginning on or after 6 April 2025.

The government’s impact assessment estimated that around 133,000 companies would move into a smaller size category, including about 14,000 moving from medium to small. That second group is particularly relevant because small-company status can open access to the statutory audit exemption.

How company size determines whether you need an audit

Section 477 of the Companies Act 2006 provides an audit exemption for a company that qualifies as small, subject to the Act’s exclusions and other conditions. Companies House therefore says a private company may qualify for exemption if it meets at least two of the £15 million turnover, £7.5 million balance sheet and 50-employee tests.

Qualifying as small is not enough in every case. Companies that must still be audited, or cannot use the small-company exemption, include certain public companies, regulated financial-services businesses and members of ineligible groups. Group companies also need the relevant group conditions checked separately.

If exemption applies, the balance sheet must contain the prescribed audit-exemption statements. A company can still choose to prepare audited accounts voluntarily.

The two-consecutive-years rule and the transitional provision

Company size normally uses a two-year test after the first financial year. Broadly, a company that changes size does not normally move into or out of a category on the strength of a single year’s figures.

The 2024 Regulations contain an important transitional rule. When determining size for a financial year beginning on or after 6 April 2025, the company can treat the new thresholds as though they had also applied to the relevant previous financial years. This lets eligible companies benefit from the higher thresholds without waiting for two full years under the new monetary limits.

That does not mean every company below £15 million turnover immediately becomes audit exempt. You still need to apply the two-out-of-three test, the prior-year rules and any group or ineligibility provisions to the company’s own circumstances.

Who may still need an audit at small-company size

A company can be unable to use the small-company audit exemption even when its figures fall below the thresholds. Examples include certain public companies; authorised insurance, banking, e-money, MiFID and UCITS businesses; companies carrying on insurance market activity; and members of an ineligible group.

A parent company also needs to consider the small-group thresholds. For financial years beginning on or after 6 April 2025, a small group must meet at least two of: aggregate turnover no more than £15 million net or £18 million gross, aggregate balance sheet total no more than £7.5 million net or £9 million gross, and no more than 50 employees on average.

Separate requirements can also arise from a company’s articles, financing documents or shareholder arrangements. A lender may, for example, contractually require audited financial statements even where company law does not.

Charitable companies need an additional check. They may qualify for Companies Act audit exemption, but charity law can independently require an audit or independent examination. In England and Wales, charity audit thresholds are also changing for financial years ending on or after 30 September 2026, so charity-law requirements should be considered separately.

Shareholders can still require an audit

Section 476 of the Companies Act 2006 allows members to require an audit even where the company would otherwise be exempt. The request must come from members representing at least 10% of the nominal value of the issued share capital, or 10% of any class of shares, or at least 10% of members where there is no share capital.

The notice must be in writing, cannot be given before the relevant financial year begins and must reach the company no later than one month before the end of that financial year.

Why some businesses choose to stay audited anyway

Dropping a statutory audit can reduce cost and administration, but some companies still choose an external audit voluntarily.

Lenders may require audited information as part of SME lending or funding arrangements. Investors or prospective buyers may also value independent assurance. A company preparing early for a sale may therefore retain an audit because an acquirer’s due diligence will scrutinise historical financial information. The same can matter in the UK and Ireland M&A market.

Audit also serves a different purpose from management accounts or forensic accounting. It can identify financial-reporting or control issues as part of the statutory-audit process, while forensic work is normally directed at a particular concern or suspected irregularity. Both can sit alongside strengthening internal financial controls and monitoring the red flags of financial fraud.

A practical checklist before you drop your audit

Check the current and previous financial years against the new thresholds, applying the transitional rule where relevant. Then confirm whether the company or group falls into an excluded or ineligible category.

Review the articles, shareholder agreements and lending documents for independent audit obligations. Consider whether members with the required 10% holding may exercise their statutory right to demand an audit. Finally, weigh the saving against what audited information provides to lenders, investors and potential buyers.

Audit exemption also does not remove filing obligations. The Companies House accounts reforms introduce further changes from 1 April 2028, including mandatory profit-and-loss-account filing for small and micro companies, although those companies will be able to opt out of publication of that information on the register.

If your business operates in both the UK and Ireland

Ireland’s company-size thresholds changed under regulations that came into operation on 1 July 2024 and can apply to financial years beginning on or after 1 January 2024, with an option to apply them from 1 January 2023. A small Irish company uses the same numerical limits in a different currency: €15 million turnover, €7.5 million balance sheet total and 50 employees, with at least two conditions required.

The rules are not interchangeable. Irish audit exemption has its own Companies Act 2014 conditions, group rules and filing-compliance requirements. A business operating across the UK and Ireland should therefore test each entity under the law of its own jurisdiction. Our cross-border accounting and tax team can help where group structures span both countries.

Getting the assessment right

If your company has moved below the new thresholds, the audit exemption may reduce annual compliance costs, but only if every statutory condition is satisfied. Recent growth, group membership, financing arrangements or restructuring can change the answer, while a CVA does not itself remove Companies Act reporting obligations.

If your company is close to the thresholds, SCC Chartered Accountants can assess the current and prior-year figures, group position and any separate audit requirements before your next accounts are prepared.