The three size tests
A private company qualifies as small, and can take the audit exemption, when it meets at least two of these three tests. For financial years beginning on or after 6 April 2025 the limits are:
- turnover of not more than £15 million
- a balance sheet total of not more than £7.5 million
- an average of not more than 50 employees
The limits before that date were £10.2 million turnover and £5.1 million balance sheet total, with the same 50-employee test. Turnover is adjusted for a financial year longer or shorter than twelve months. The balance sheet total is gross assets, before any liabilities are deducted.
LLPs use the same three tests under the LLP accounts regulations.
The two-year rule
A company's size category changes only when it meets, or fails, the tests in two consecutive years. A company that goes over the limits for one year keeps its small status for that year. The audit becomes compulsory in the second consecutive year over the limits. The same rule works in reverse on the way down.
A company in its first financial year qualifies as small if it meets the tests in that year. For the 2025 increase, companies can apply the new limits to the previous year when they look back to check whether they qualified then.
A company growing quickly can see the audit coming a year ahead. The year it first goes over the limits is the time to appoint an auditor, so the opening balances for the first audited year can be checked as they happen.
Companies that need an audit at any size
Some companies cannot take the small company exemption whatever their turnover. They include:
- public companies, unless dormant
- banks and other authorised deposit takers
- insurers and companies carrying on insurance market activity
- e-money issuers
- MiFID investment firms and UCITS management companies
- companies with shares traded on a regulated market
- special register bodies and employers' associations
Subsidiaries can take the exemption only when the group they belong to also qualifies, or when the parent gives a guarantee under section 479A.
Companies in a group
A subsidiary looks at its own size and at the size of the whole group it belonged to during the year. If the group is over the limits, every UK company in it needs an audit, however small that company is on its own.
The small group limits are £15 million turnover and £7.5 million balance sheet total net of intra-group items, or £18 million and £9 million gross, with the same 50-employee test. A group that includes a public company, a bank, an insurer or another regulated firm is an ineligible group, and its subsidiaries cannot use the small company exemption.
A subsidiary with a UK parent can avoid an audit through a parent guarantee under section 479A. The guide to group audits covers the conditions.
Shareholders can ask for an audit
Members holding at least 10% of the shares, by number or by value, can require the company to have its accounts audited. They need to write to the company at least one month before the end of the financial year concerned.
When someone else asks for one
An audit is often a condition of finance or ownership even where the law does not require one. Banks write it into loan agreements, investors write it into shareholder agreements, grant funders put it in their terms, and overseas parents ask for audited figures for group reporting. A buyer may also ask for audited accounts as part of due diligence. Read the agreements before deciding to drop an audit.
Charities
Charities in England and Wales follow the Charities Act thresholds, which went up for financial years ending on or after 30 September 2026. An audit is needed when gross income is over £1.5 million, or over £500,000 with gross assets over £5 million. Charitable companies check both company law and charity law. The charity audit guide has the full table.
Questions
Do the new thresholds apply to my current year?
They apply to financial years beginning on or after 6 April 2025. A company with a 31 December year end first uses them for the year ending 31 December 2026. When working out whether a company was small in the previous year, the new limits can be applied to that year too.
What counts as the balance sheet total?
The total of the assets shown on the balance sheet, before deducting any liabilities. It is the figure usually called gross assets.
Who counts as an employee?
The average number of people employed under contracts of employment during the year, worked out month by month. Directors count when they have an employment contract with the company.
We are exempt. Should we still have an audit?
Some companies choose one. A bank, an investor or a buyer may ask for audited accounts, and an audit can help when the company expects to cross the thresholds soon and wants the first year done before it is compulsory.