Small Company Audit Exemption: Does Your UK Company Need an Audit?

A company can be small, profitable and growing without needing a statutory audit. But knowing if your business can legally skip an audit is not always as simple as looking at its turnover. UK rules use three size tests, and the figures changed for financial years beginning on or after 6 April 2025. For 2026, the current limits are £15 million in annual turnover, £7.5 million in balance sheet total and 50 employees on average. 

Finsoul Network UK helps businesses understand these requirements and assess what they mean for their company. A company generally needs to meet at least two of these three conditions to qualify for the exemption.

What Is a Small Company Audit Exemption?

This exemption allows qualifying private companies to prepare their annual accounts without having them audited. Finsoul Network UK helps businesses understand the UK company rules, assess their position and prepare for the accounting and filing requirements that apply to them.

The exemption is based on company size, but there are other points to check before relying on it. A company may qualify as small but still need an audit because of its articles, a shareholder request or its type of business. Some regulated and public companies cannot use the exemption at all.

For a private company, the main points to check are:

• Your annual turnover is no more than £15 million.
• Your balance sheet total is no more than £7.5 million.
• You have no more than 50 employees on average.
• At least two of the three tests are met.
• Your company is not in a category excluded from the exemption.
• Your articles or shareholders do not require an audit.

The exemption relates to the audit of the accounts. It does not remove the company’s other accounting, tax or filing duties.

What Are the UK Audit Exemption Thresholds?

The current UK limits give many private companies a higher ceiling before they need to consider an audit. For financial years beginning on or after 6 April 2025, the small-company test uses the following figures.

• Turnover: no more than £15 million.
• Balance sheet total: no more than £7.5 million.
• Employees: no more than 50 on average.
• Required tests: at least two of the three conditions must be met.
• Financial-year date: the current limits apply to financial years beginning on or after 6 April 2025.
• Company type: the exemption is aimed at qualifying private companies and does not apply to certain excluded businesses.

The important point is that a company does not have to stay below all three figures. Meeting two tests can be enough to qualify as a small company under the current rules.

For example, a business with £14 million turnover, £8 million in assets and 40 employees meets the turnover and employee tests. It can therefore meet two of the three size conditions despite being above the balance sheet limit.

What Changed to the UK Audit Thresholds for 2026?

The current limits are already in place. The change took effect for financial years beginning on or after 6 April 2025, so companies preparing accounts in 2026 need to check the start date of the relevant financial year rather than simply looking at the calendar year.

Before the change, the small-company limits were £10.2 million turnover, £5.1 million balance sheet total and 50 employees. The current limits are £15 million, £7.5 million and 50 employees respectively.

This means some businesses that previously fell outside the small-company limits may now qualify. However, the change does not mean every company can automatically stop having an audit. The two-out-of-three test, company type, group position, articles and shareholder rights still need to be checked.

The Companies Act 2006 provides the statutory basis for the exemption and the conditions that apply to it.

Does Your Company Have to Meet All Three Tests?

No. A company generally needs to meet at least two of the three size conditions, rather than all three. The three measures are turnover, balance sheet total and average employee numbers.

This is one of the easiest parts of the rules to misunderstand. A company can be above one limit and still qualify if it remains within the other two.

For example, a company could have:

• £16 million turnover
• £6 million balance sheet total
• 40 employees

It is above the turnover limit, but it remains within the balance sheet and employee limits. That gives it two qualifying tests.

Another company might have £16 million turnover, £8 million in assets and 55 employees. It would be above all three limits and would not meet the small-company size test.

The figures should be checked for the relevant financial year, and the two-year rule can affect the result for companies that move above or below the limits.

How the Two-Year Rule Affects Small Company Status

The two-year rule matters when a company moves above or below the small-company limits. Under the current legislation, a change in qualification for a later financial year generally has to occur across two consecutive financial years before the company’s small-company status changes.

For example, if a company has been small and then exceeds the qualifying conditions in one year, that does not automatically mean it loses small-company status for the next accounting period. The figures for the following year also matter.

This rule prevents a company’s size category from changing every time its results move slightly above or below a limit. Companies with figures close to the limits should therefore look at the current year and the previous year before deciding how the rules apply.

Does a Small Company Still Need an Audit?

Being classed as a small company does not always mean an audit can be skipped. A qualifying company can still have an audit requirement because of its own circumstances.

Check these points before relying on the exemption:

• Articles of association: The company’s articles may state that an audit is required.
• Shareholder request: Members holding at least 10% can require an audit by giving the required notice.
• Company type: Public companies and certain regulated businesses are excluded from the small-company exemption.
• Group position: A company that forms part of a group may need extra checks before claiming an exemption.
• Business activity: Certain financial and regulated activities have different audit rules.

So, the size test is only one part of the question. A company should also check its legal structure and any rights held by its members.

Should a Small Company Have an Audit If It Does Not Need One?

A company that qualifies for audit exemption can still choose to have an audit. The decision can depend on the company’s circumstances rather than a legal requirement.

An audit may be useful where lenders, investors or other stakeholders want independently checked financial information. It can also be considered by a business preparing for a major transaction, investment or change in ownership. For some companies, audited accounts can provide greater confidence to people reviewing the financial position. For others, the cost may not be justified by their current needs.

Directors should consider the company’s financing arrangements, shareholders, plans and reporting needs before deciding to have a voluntary audit.

Small Company vs Micro-Entity: What Is the Difference?

A micro-entity is a smaller category within the UK company accounts framework. It has lower size limits and can use simpler accounting provisions if it meets the relevant conditions. A micro-entity can also claim audit exemption as a small company if it meets the requirements.

The micro-entity limits shown above apply to accounting periods beginning on or after 6 April 2025.

The two categories should not be treated as the same. A company can qualify as small without qualifying as a micro-entity because its turnover, assets or employee numbers are above the lower micro-entity limits.

What Does Audit Exemption Mean for Your Company Accounts?

Audit exemption only removes the need for a full audit when the company qualifies and all relevant conditions are met. It does not remove the need to keep proper accounting records or deal with annual accounts.

A company using the exemption still needs to consider:

• Preparing its statutory annual accounts.
• Having the accounts approved by the directors.
• Filing the required accounts with Companies House.
• Meeting its Corporation Tax and HMRC responsibilities.
• Including the required statements in the accounts when claiming an exemption.

Small companies can use special accounting provisions, but directors remain responsible for the company’s accounts and records. Dormant companies follow a separate route, and dormant company accounts are prepared and filed under their own provisions.

This is important because “audit exempt” does not mean “accounts exempt”. A company still has financial reporting duties even when an external audit is not required.

What Statement Is Required When Claiming Audit Exemption?

A company claiming the exemption must include the required statement on its balance sheet. The statement confirms the company’s entitlement to the exemption and covers the directors’ responsibilities.

The balance sheet statement needs to address these points:

• The company is using the audit exemption.
• The company qualifies for the relevant exemption.
• The members have not required an audit under the statutory procedure.
• The directors accept responsibility for the accounting records.
• The directors accept responsibility for preparing the accounts.
• The statement is included in the balance sheet in the required form and position.

The wording is set by the legal requirements, so it should not be treated as a general note that can be written in any form. GOV.UK provides the wording and requirements for companies using the exemption.

What Will Change for Company Accounts in 2028?

Companies House has confirmed that important accounts filing changes will begin on 1 April 2028. The changes will affect small companies, micro-entities and other companies filing accounts in the UK.

From that date:

• Small companies and micro-entities will need to deliver a profit and loss account to Companies House.
• Small companies and micro-entities will have an option to opt out of public publication of the profit and loss account, with further details to follow.
• Companies will need to file accounts using commercial software.
• Paper and current web-based accounts filing routes will close.
• Abridged accounts will no longer be available.

The changes do not remove the exemption. They change how companies prepare and file information with Companies House. Companies that currently rely on audit exemption should therefore keep the filing changes separate from the question of whether an audit is legally required.

Small Company Audit Exemption Checklist

Before claiming the exemption, work through the main requirements rather than relying only on turnover.

• Check the financial year: Confirm that you are applying the limits for the correct accounting period.
• Check turnover: Compare annual turnover with the £15 million limit.
• Check assets: Look at the balance sheet total against the £7.5 million limit.
• Check employees: Work out the average number of employees for the relevant period.
• Check other conditions: Review your company type, group position, articles and shareholder rights.
• Check the accounts: Include the required audit exemption statement and continue to meet your Companies House and HMRC responsibilities.

If your figures are close to the limits or your company has a complex group or ownership structure, the position may need a closer review.

Conclusion

For many qualifying private companies, the small company audit exemption means a full audit is not required. The main test is based on three measures: turnover, balance sheet total and average employees. A company generally needs to meet at least two of the three conditions, while certain company types and other circumstances can prevent the exemption from applying.

Finsoul Network UK can help businesses understand the current rules, review the information that affects their company status and prepare for the accounting requirements that come with operating a UK company.

The rules should be checked against the financial year in question, particularly for companies close to the limits or affected by group, shareholder or regulatory requirements. Companies should also keep the 2028 Companies House filing changes in mind when planning future accounts.

FAQs

What is the audit exemption for small companies in the UK?

A qualifying private company may not need an audit if it meets at least two of the three small-company size tests and no other audit requirement applies.

What are the current UK small company audit limits?

For financial years beginning on or after 6 April 2025, the limits are £15 million turnover, £7.5 million balance sheet total and 50 employees on average.

Does a small company have to meet all three audit tests?

No. A company generally needs to meet at least two of the three tests. It can be above one limit and still qualify if it remains within the other two.

Can shareholders require a small company to have an audit?

Yes. Members holding at least 10% of the company’s shares can generally require an audit by following the required notice procedure.

Do audit-exempt companies still have to file accounts?

Yes. Audit exemption does not remove the requirement to prepare and file the company’s required annual accounts with Companies House.