What are audit exemption thresholds in the UK?

Here is a comprehensive answer on UK audit exemption thresholds.

What the law says

General requirement and exemptions

All UK companies must have their annual accounts audited unless they qualify for a specific exemption under the Companies Act 2006. The three main exemptions are: (1) small companies (s.477), (2) qualifying subsidiaries (s.479A), and (3) dormant companies (s.480).

1. Small Company Exemption (s.477 CA 2006)

A company that qualifies as a small company is exempt from the audit requirement for that financial year.

The qualifying thresholds (s.382 CA 2006): A company qualifies as small if it satisfies at least two of the following three conditions in a financial year:

For a parent company, the group as a whole must qualify as a small group using the same two-out-of-three test, but with aggregate figures of: turnover not more than £15 million net (or £18 million gross), balance sheet total not more than £7.5 million net (or £9 million gross), and not more than 50 employees.

Two-year rule: Where a company meets or ceases to meet the qualifying conditions, this only affects its small company status if it occurs in two consecutive financial years.

2. Companies excluded from the small company exemption (s.478 CA 2006)

Even if the thresholds are met, the following companies cannot use the small company audit exemption:

• Public companies
• Authorised insurance companies, banking companies, e-money issuers, MiFID investment firms, UCITS management companies, or companies carrying on insurance market activity
• Scheme funders of a Master Trust scheme
• Special register bodies or employers' associations under the Trade Union and Labour Relations (Consolidation) Act 1992

A group company (parent or subsidiary) cannot use the small company exemption unless the group itself qualifies as a small group and is not an ineligible group.

3. Qualifying Subsidiary Exemption (s.479A CA 2006)

A subsidiary company (with a UK-established parent) may be exempt from audit of its individual accounts regardless of size, provided:

• All members agree to the exemption
• The parent gives a guarantee of the subsidiary's liabilities (s.479C)
• The subsidiary is included in audited consolidated accounts of the parent
• The parent discloses the exemption in the consolidated accounts notes
• Specified documents are filed at Companies House on or before the accounts filing date

4. Dormant Company Exemption (s.480 CA 2006)

A company is exempt if it has been dormant since formation, or dormant since the end of the previous financial year and is entitled to prepare accounts under the small companies regime (or would be but for being a public company or member of an ineligible group), and is not required to prepare group accounts.

Traded companies, authorised insurance companies, banking companies, e-money issuers, MiFID investment firms, UCITS management companies, and companies carrying on insurance market activity are excluded from the dormant company exemption.

5. Balance sheet statement requirement

In all cases, a company claiming any audit exemption must include a statement on its balance sheet signed by the directors: (a) identifying the exemption claimed, (b) confirming the company qualifies, and (c) confirming that members have not required an audit and that the directors acknowledge their accounting responsibilities.

Members holding 10% or more of the nominal value of issued share capital (or 10% in number for companies without share capital) can require an audit by notice given no later than one month before the end of the financial year.

HMRC guidance / practice

HMRC notes (in the context of off-payroll working rules) that the small company thresholds under s.382 CA 2006 were previously set at turnover of more than £10.2 million and balance sheet total of more than £5.1 million (with the 50-employee limit unchanged). From 6 April 2025, these thresholds increased to £15 million turnover and £7.5 million balance sheet total for financial years beginning on or after that date. The statutory figures in s.382 CA 2006 now reflect these updated thresholds.

HMRC also confirms that a corporate entity must meet the relevant conditions for two consecutive financial years before its size classification changes.