UK Audit Exemption Thresholds 2025/26: Does Your Company Still Need a Statutory Audit?

Written by the Experlu Editorial Team. Reviewed by Rajesh M., ACA (ICAEW) – Audit Support Specialist, ex KPMG & Deloitte, 20+ years’ experience in UK statutory audit, advisory and financial reporting. Last updated: May 2026

For years, the question of whether a UK company needed a statutory audit came down to three numbers: £10.2 million in turnover, £5.1 million in assets, and 50 employees. If you stayed below two of those three, you could generally claim exemption.

Those numbers have now changed significantly. And if your business falls between the old and new thresholds, the change matters directly to you.

This guide sets out exactly what has changed, who it affects, and what you should actually do with this information. Because audit exemption is not as straightforward as it sounds, and assuming it applies when it does not can create serious compliance problems.

What Changed and When

The UK government raised the small-company audit exemption thresholds under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303). The new thresholds apply to financial years beginning on or after 6 April 2025.

The updated criteria are:

To qualify as small — and therefore potentially exempt from a statutory audit — your company must meet at least two of these three criteria.

This is the most significant revision to UK audit thresholds since 2016. The increase was driven by the government’s aim to reduce the regulatory burden on growing businesses and to account for inflation since the previous thresholds were set.

Important: The first financial years ending under the new thresholds will be in 2026. For most companies with a standard March year-end, the new limits will first apply to the year ending 31 March 2026. For companies with December year-ends, the new limits apply to the year ending 31 December 2026.

The Two Consecutive Years Rule — Often Missed

Before deciding your audit position, you need to understand a rule that catches many directors out.

Under the Companies Act 2006, a company does not automatically gain or lose its exemption status based on a single year’s figures. A company must meet (or fail to meet) the size criteria for two consecutive financial years before its status changes.

In practice, this means:

If your company has been above the old thresholds and required to have an audit, you will not automatically become exempt the first year you fall below the new thresholds. You would normally need to be below the limits for two consecutive years.

Equally, if a company that has been exempt breaches the thresholds in a single year, it does not immediately require an audit. It only loses its exemption if it breaches them in two consecutive years.

However, the 2024 regulations include an important transitional provision. When determining your company’s size for a financial year beginning on or after 6 April 2025, you are permitted to treat the new higher thresholds as if they had also applied in the previous financial year. This means that many companies in the gap between the old and new thresholds can benefit from the higher limits immediately, rather than waiting a second year.

If you are in this position, speak to your accountant or talk to a vetted auditor about how the transitional provision applies to your specific year-end.

Who This Directly Affects

If your business was previously above the old thresholds and therefore required to have a statutory audit, the new thresholds may mean you now qualify for exemption, depending on your specific numbers.

The businesses most directly affected are those with:

• Turnover between £10.2 million and £15 million
• Total assets between £5.1 million and £7.5 million

For these businesses, a statutory audit that was mandatory for the previous financial year may no longer be legally required for financial years beginning on or after 6 April 2025.

However — and this is where many businesses make errors — qualifying for exemption and deciding to take it are two separate questions. We will come to that shortly.

Who Is Not Affected — Regardless of Size

The threshold change does not apply to certain categories of companies. These businesses remain subject to mandatory statutory audit regardless of their turnover, assets, or employee numbers. To understand what a full statutory audit involves for these entities, see our overview of audit services in the UK:

• Public companies — any company whose shares are publicly traded
• Subsidiary companies — unless they qualify for the specific subsidiary audit exemption under s.479A of the Companies Act 2006
• Authorised insurance companies and those carrying out insurance market activity
• Banking companies
• Electronic money (e-money) issuers
• MiFID investment firms
• UCITS management companies
• Companies with securities admitted to trading on a regulated market
• Funders of master trust pension schemes
• Special register bodies and pensions or labour relations bodies
• FCA-regulated firms subject to client asset audit requirements

If your company falls into any of these categories, the change in threshold is irrelevant to your audit obligation. You will still need a statutory audit.

What About LLPs?

The new thresholds are not limited to companies. Limited Liability Partnerships (LLPs) follow the same size criteria for audit exemption, and the updated thresholds apply to LLPs via parallel amendments to the LLP regulations.

An LLP qualifies for audit exemption on the same basis as a company: it must meet at least two of the three size criteria (turnover, balance sheet total, employees) and must not be an ineligible entity (such as an LLP with securities traded on a regulated market, or one that is an authorised insurance company, banking LLP, e-money issuer, MiFID investment firm, or UCITS management company).

The two consecutive years rule also applies to LLPs, and the transitional provision allowing the new thresholds to be treated as if they applied in the prior year is equally available.

If your LLP has been required to have an audit because it exceeded the old thresholds, it is worth reviewing whether the new limits bring you within the small LLP exemption. The practical considerations around whether to take the exemption or maintain a voluntary audit — discussed below — apply equally to LLPs. You can find a registered auditor to assess your LLP’s position quickly.

ICAEW estimates that the threshold uplift will move approximately 113,000 companies and LLPs from the “small” to the “micro-entity” category, with around 14,000 moving from medium to small, and 6,000 from large to medium.

Dormant Company Exemption

If your company is dormant — meaning it has had no significant accounting transactions during the financial year — it may qualify for audit exemption under s.480 of the Companies Act 2006, separately from the small company route.

A dormant company does not need to meet the size thresholds at all. However, this exemption is not available if the company is a public company, a member of an ineligible group, or an FCA-regulated entity. “Significant” transactions for this purpose exclude shares taken by subscribers on formation and fees paid to Companies House.

This is a distinct route from the small company exemption. If your company is genuinely dormant, the size thresholds are not relevant to your audit obligation, but the other restrictions still apply.

The Shareholder Override — Often Overlooked

Even if your company genuinely qualifies as small under the new thresholds, there is one further factor that can override your exemption.

Under s.476 of the Companies Act 2006, members representing not less than 10% in nominal value of the company’s issued share capital, or any class of it, can require the company to obtain a statutory audit even if it would otherwise be exempt. The request must be made in writing and must arrive at the company’s registered office at least one month before the end of the financial year to which it relates.

This can be an individual shareholder or a group of shareholders acting together.

This is not an obscure provision. In businesses with multiple shareholders who are not all involved in day-to-day management — including family businesses, businesses with outside investors, or companies that have taken on equity finance — this right is regularly exercised.

If you have minority shareholders with 10% or more of your shares by nominal value, the decision about whether to take audit exemption is not entirely yours to make. It is worth clarifying their position before assuming the exemption applies.

The Subsidiary Question

If your company is a subsidiary of a larger group, the picture is more complicated. For a detailed guide, see our dedicated article on UK subsidiary audits.

Small company route

A subsidiary that is part of a group can claim the standard small company exemption under s.477, but only if the group as a whole also qualifies as small. The group thresholds, which also increased from 6 April 2025, are:

These thresholds are assessed based on the largest possible group considered worldwide. Even if an individual subsidiary is small on its own figures, it will not qualify for the small company exemption if the group as a whole exceeds the group thresholds.

Critically, if the group contains an “ineligible” company — such as a company with listed securities, an authorised insurance company, a banking company, or a MiFID investment firm — the entire group is rendered ineligible, and every UK company in it will require an audit.

Parent guarantee route

Subsidiaries can alternatively claim audit exemption under s.479A of the Companies Act 2006, but only if specific conditions are met:

• The parent company must be established under UK law. Post-Brexit, EEA parent companies no longer qualify for this route. This is an important change from the pre-Brexit position.
• The parent company must prepare consolidated financial statements that include the subsidiary.
• The parent company must provide a statutory guarantee for all of the subsidiary’s outstanding liabilities at the year-end.
• The guarantee must be filed at Companies House along with the subsidiary’s accounts.
• The members of the subsidiary must not have objected to the exemption being claimed.

The parent providing the guarantee does not have to be the immediate parent — an intermediate UK parent preparing consolidated accounts can also provide it.

If your business is a subsidiary operating within a UK group structure, speak to your accountant or find a specialist auditor about whether the s.479A route is available and appropriate. Do not assume the exemption applies simply because your subsidiary is small on its own figures.

Exemption Is Not Automatic: What You Actually Need to Do

This point is consistently misunderstood. Qualifying as small does not mean the exemption is applied automatically. Your company must actively claim it.

To take audit exemption, the balance sheet in your annual accounts must include a statement from the directors confirming that:

• The company was entitled to exemption from audit under s.477 of the Companies Act 2006
• No notice has been received from members requiring an audit under s.476
• The directors acknowledge their responsibility for ensuring the company maintains accounting records that comply with s.386 and for preparing accounts that give a true and fair view

This statement must appear on the balance sheet above the directors’ signature and must be signed by a director on behalf of the board before the accounts are filed at Companies House. If the statement is omitted or incorrectly worded, the accounts may be rejected. For more on how Companies House reforms affect filing requirements, see our separate guide.

If you are not certain your accounts include the correct exemption statement, ask your accountant to review before filing.

Should You Actually Take the Exemption?

This is the question that deserves more consideration than most businesses give it.

Audit exemption reduces cost and removes a compliance obligation. For a straightforward owner-managed business with no external investors, no debt finance, and no plans to sell or raise money in the near future, taking the exemption is often the right call.

But for a significant number of businesses that legally qualify for exemption, taking it creates practical problems that outweigh the savings.

If you are raising finance

Banks, institutional lenders, and alternative finance providers routinely request audited accounts as part of their credit assessment, even when the borrower is technically exempt.

An unaudited set of accounts from a growing business carries less weight in a lending decision than one signed off by a registered auditor. If you anticipate needing finance in the next two to three years, audited accounts now make that process smoother and may improve your terms.

If you are planning to sell

A buyer conducting due diligence on your business will scrutinise your financial statements carefully. Audited accounts going back two to three years give a buyer — and their advisers — a higher degree of confidence in your numbers. That confidence often translates directly into a cleaner sale process and a stronger negotiating position on price. For more on the due diligence process, see our guide on how to sell a business in the UK. Businesses without audited accounts frequently face additional due diligence costs and more prolonged negotiations.

If you tender for public sector contracts

Many public procurement frameworks — particularly for contracts above a certain value threshold — require suppliers to provide audited financial statements. Some frameworks ask for this regardless of company size. Our article on audit services for the public sector covers this in detail.

If public sector work is part of your business model, audit exemption may quietly close doors you do not realise are open.

If you have outside investors or non-executive directors

Board members and investors who are not involved in day-to-day management have a legitimate interest in independent verification of the financial statements. A voluntary audit is the most straightforward way to provide that assurance and avoid the kinds of disputes that arise when financial reporting is questioned after the fact. Read more about how auditors manage risk in companies here.

If your internal controls are developing

A statutory audit is not just a compliance exercise. A good auditor will identify weaknesses in your financial processes, flag control gaps, and make recommendations that save you money and reduce risk in the long run. See our guide on managing risk through audit services for more detail.

For a business that has grown quickly and whose financial infrastructure has not kept pace with that growth, an annual audit is often worth significantly more than its cost.

If you want assurance but not a full audit

If your company no longer requires a mandatory audit but you want some level of external assurance, there are alternatives to a full statutory audit.

An assurance review (also called a limited review) provides moderate assurance — less depth than a full audit but more than accounts preparation alone.

Targeted reviews focusing on specific areas, such as internal controls or revenue recognition, are also available. In practice, many businesses find that the incremental cost of a full voluntary audit over an assurance review is modest, and the benefits of a comprehensive auditor’s opinion outweigh the savings. But the option is worth knowing about.

A voluntary audit for a business that qualifies for exemption typically costs the same as a statutory audit would for a business of equivalent size and complexity. The question is not whether you can afford one — it is whether the commercial case for having one outweighs the cost of the exemption saving.

If you are genuinely unsure, speaking to a vetted auditor through Experlu costs nothing. You can receive three independent proposals from registered and vetted auditors who can assess your specific situation and give you a clear answer on whether audit exemption makes sense for your business.

What the Change Means for Audit Fees

One consequence of the threshold increase that is worth understanding is its effect on the audit market more broadly.

As some businesses exit the mandatory audit pool, audit firms — particularly smaller regional practices — will face increased competition for fewer mandatory engagements. The practical effect for businesses that do remain in scope is that there may be more flexibility in fee negotiations than there was when demand was higher. For a broader picture of how external audit services work, see our dedicated guide.

For businesses now choosing a voluntary audit, this is also a reasonable time to approach the market. Firms that have capacity created by the threshold change may be more competitive on fees than they would otherwise be.

If you are coming to the audit market fresh — either because you previously used your exemption or because your business has grown into the mandatory threshold — getting three competitive quotes through Experlu gives you a realistic picture of what firms are charging and what is negotiable.

The Practical Checklist for 2025/26

If your financial year begins on or after 6 April 2025, work through the following before deciding on your audit position:

Step 1 — Check your numbers against the new thresholds. Are you below two of the three criteria: £15 million turnover, £7.5 million assets, 50 employees? If not, the audit is still mandatory, and the threshold change does not help you. Review what audit services for small businesses look like if you remain in scope.

Step 2 — Consider the two consecutive years rule. Have you been below the thresholds for two consecutive years? If this is the first year you fall below, check whether the transitional provision applies — it allows you to treat the new thresholds as if they applied in the prior year as well, which may mean you qualify immediately.

Step 3 — Check your company structure. Is your company a subsidiary? Is it FCA-regulated, an insurer, a bank, or listed on a regulated market? If yes, the exemption does not apply regardless of your size.

Step 4 — If you are a subsidiary, check the group position. Does the group as a whole qualify as small? Does the group contain any ineligible companies? If the group is too large or contains an ineligible entity, the small company exemption is not available — but the parent guarantee route under s.479A may still be an option. See our full guide on UK subsidiary audits for more detail.

Step 5 — Check your shareholder register. Does any member hold 10% or more in nominal value of any class of shares? If yes, speak to them before assuming exemption. They have the legal right to request an audit.

Step 6 — Assess the commercial case. Are you raising finance, planning a sale, tendering for public sector work, or dealing with outside investors in the next 12 to 24 months? If any of these apply, the case for a voluntary audit may be stronger than the case for exemption.

Step 7 — If you are taking an exemption, ensure the correct statement appears in your accounts. Your directors’ statement must use the precise wording required under s.477. Ask your accountant to confirm this before filing.

Step 8 — If you are having an audit, start the process early. Before appointing anyone, review our list of 10 powerful questions to ask an auditor before hiring and our guide on how to prepare for your first audit. Auditors with capacity for your financial year-end are easier to find and negotiate with in advance. Last-minute approaches — particularly for March and December year-ends when audit firms are at their busiest — limit your options and your leverage on fees.

If you need an auditor for 2025/26, Experlu can match you with three vetted, ICAEW or ACCA-registered audit firms within 48 hours — at no cost to your business.

Frequently Asked Questions

Do the new audit thresholds apply to LLPs? Yes. The updated thresholds apply to Limited Liability Partnerships via parallel amendments to the LLP regulations. The same size criteria, the two consecutive years rule, and the transitional provision all apply.

Can I claim audit exemption immediately, or do I have to wait two years? The transitional provision in the 2024 regulations allows you to treat the new thresholds as if they applied in the previous financial year as well. This means many companies can benefit from the new thresholds straight away, without waiting a second year. However, the application depends on your specific circumstances, so confirm with your accountant or speak to a registered auditor.

What if my company is dormant? Dormant companies have a separate audit exemption route under s.480. You do not need to meet the size thresholds, but your company must not be a public company, a member of an ineligible group, or FCA-regulated.

What is the difference between a statutory audit and a voluntary audit? A statutory audit is legally required. A voluntary audit is one you choose to have, even though the law does not require it. The audit process, standards applied, and the assurance provided are identical — the only difference is whether the law compels you to have one.

How much does a voluntary audit cost? Fees vary by size and complexity, but a voluntary audit typically costs the same as a statutory audit for a business of equivalent scale. Getting three competitive quotes through Experlu will give you a realistic benchmark.

Can shareholders force an audit even if the company qualifies for exemption? Yes. Members holding at least 10% in nominal value of the issued share capital (or any class of it) can require an audit by making a written request to the company’s registered office at least one month before the financial year-end.

Summary

The 2025 threshold changes are genuine and meaningful. Some businesses that have been required to have a statutory audit for years will now legitimately qualify for exemption. For those businesses, the decision about whether to take that exemption deserves proper consideration — not a reflexive assumption that removing the obligation is always the right outcome.

For businesses that remain in scope, or that choose a voluntary audit for commercial reasons, the fundamentals have not changed. A statutory audit conducted by a properly registered auditor remains the most reliable form of independent financial assurance available in the UK.

If you are working through the exemption question for your business and want an independent view from a registered auditor, Experlu can connect you with three vetted audit professionals who can assess your specific situation — free of charge, with no obligation to proceed.

This article has been reviewed by Rajesh M., ACA (ICAEW), Audit Support Specialist, ex KPMG & Deloitte, with 20+ years of experience in UK statutory audit, advisory and financial reporting. Last updated May 2026. Statutory threshold information sourced from The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303) and Companies House guidance.