What is a company audit requirement?
Answered 17 March 2026
Company Audit Requirement
What the law says
Under the Companies Act 2006, a company's annual accounts for a financial year must be audited in accordance with Part 16 of that Act, unless an exemption applies.
Exemptions available are limited to:
- Small companies (s.477)
- Subsidiary companies (s.479A)
- Dormant companies (s.480)
- Non-profit-making companies subject to public sector audit (s.482)
To claim any exemption, the company's balance sheet must contain a statement by the directors:
- Identifying the exemption in question
- Confirming the company qualifies for it
- Confirming that members have not required an audit under s.476
- Acknowledging the directors' responsibilities for accounting records and preparation of accounts
Members' right to require an audit: Even where an exemption would otherwise apply, members holding at least 10% in nominal value of the company's issued share capital (or 10% in number for companies without share capital) may serve notice requiring an audit. Such notice must be given no later than one month before the end of the financial year in question.
Small companies exemption applies to companies qualifying as small under s.382(1)–(6), subject to the conditions in ss.475–479.
Dormant companies exemption is not available to traded companies, authorised insurance companies, banking companies, e-money issuers, MiFID investment firms, UCITS management companies, or companies carrying on insurance market activity.
HMRC Guidance / Practice
HMRC notes the following practical conditions for the small companies audit exemption:
- The company must qualify as small by meeting size limits over a 2-year period (unless it is the first year of trading)
- The company must not be part of a group unless the whole group qualifies as a small group
- The company must not be a public company, banking or insurance company, a company registered under FSMA 2000 to carry on regulated activity, or registered as a trade union or employers' association
- The company must not be a charity (lower limits apply to charities)
- Members have not requested an audit — shareholders holding at least 10% of share capital can still force an audit
⚠️ Importantly, HMRC emphasises that these exemptions only relax the requirement to have accounts audited — companies are still required to prepare accounts and file them with Companies House.
For dormant companies, s.480 of the Companies Act 2006 relieves the audit requirement provided the conditions of that section are met.
Citation sources
Part 16 Audit Chapter 1 Requirement for audited accounts Exemption from audit: small companies Small companies: conditions for exemption from audit 477 1 A company that qualifies as a small company in relation to a financial year is exempt from the requirements of this Act relating to the audit of accounts for that year. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 For the purposes of this section— a whether
Section 480 of the Companies Act 2006 relieves a dormant company of the requirement to obtain an audit provided the conditions set out in that section are met. An explanation of HMRC’s view as to what constitutes a dormant company can be read here]
Part 16 Audit Chapter 1 Requirement for audited accounts Requirement for audited accounts Requirement for audited accounts 475 1 A company's annual accounts for a financial year must be audited in accordance with this Part unless the company— a is exempt from audit under— section 477 (small companies), section 479A (subsidiary companies) or section 480 (dormant companies); or b is exempt from the requirements of this Part under section 482 (non-profit-making companies subject to public sector au
Part 16 Audit Chapter 1 Requirement for audited accounts Requirement for audited accounts Right of members to require audit 476 1 The members of a company that would otherwise be entitled to exemption from audit under any of the provisions mentioned in section 475(1)(a) may by notice under this section require it to obtain an audit of its accounts for a financial year. 2 The notice must be given by— a members representing not less in total than 10% in nominal value of the company's issued share
In addition to the monetary limits EM2781 the following conditions apply. The company still has to qualify as a small company, which is dependent on meeting a number of limits over a 2 year period, unless it is the first year of trading. There are some complex transitional provisions that we haven’t outlined here, so talk to your compliance accountant if this needs to be clarified. The company must not be part of a group unless the whole group qualifies as a small group. Again the definitions ca
Part 16 Audit Chapter 1 Requirement for audited accounts Exemption from audit: dormant companies Companies excluded from dormant companies exemption 481 A company is not entitled to the exemption conferred by section 480 (dormant companies) if it was at any time within the financial year in question a company that— za is a traded company as defined in section 474(1), a is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company,