Audit Exemption for Small Companies: Do You Qualify?

Most small private limited companies do not need an audit. A company may qualify for audit exemption if it meets at least 2 of 3 size limits, provided its articles do not require an audit, its shareholders have not asked for one, and it is not a type of company that must always be audited. This guide explains the test, the exceptions, and the statement that has to appear on your balance sheet when you claim the exemption.

Key takeaways

• The size test is 2 out of 3: turnover, assets and average employees.
• Higher limits apply to financial years that begin on or after 6 April 2025.
• Shareholders with at least 10% of the shares can require an audit.
• Some companies must be audited whatever their size.
• Exempt companies still prepare and file accounts, with a set statement on the balance sheet.

What is a statutory audit?

A statutory audit is an independent examination of a company's annual accounts, required by company law, carried out by a registered auditor. The auditor does not prepare the accounts. They test the figures and the records behind them and then give a written opinion, the auditor's report, which is attached to the accounts sent to shareholders and filed at Companies House.

What is audit exemption?

Audit exemption lets a qualifying company file its accounts without an auditor's report. The rules are summarised on GOV.UK under audit exemption for private limited companies. The page opens with two conditions that override everything else: you will need an audit if your articles of association say you must, or if your shareholders ask for one.

The 2 out of 3 size test

For financial years that begin on or after 6 April 2025, GOV.UK says your company may qualify for an audit exemption if it has at least 2 of the following:

• an annual turnover of no more than £15 million
• assets worth no more than £7.5 million
• 50 or fewer employees on average

For financial years beginning between 1 January 2016 and 5 April 2025, the limits were lower: turnover of no more than £10.2 million and assets worth no more than £5.1 million, with the same 50 employee limit. Which set applies depends on the date your financial year started, not the date you file.

Companies House guidance adds that a company generally qualifies as small in its first financial year if it meets the conditions in that year, and in later years it must meet them in that year and the year before. If you are close to a limit, look at two years, not one.

The assets figure is the balance sheet total, meaning assets before deducting what the company owes. Our guide to reading a company balance sheet shows where to find it.

Companies that must have an audit

Size is not the only test. GOV.UK lists companies that must have an audit if, at any time in the financial year, they have been one of the following:

• a public company, unless it is dormant
• a subsidiary company, unless it qualifies for an exemption
• an authorised insurance company, or carrying out insurance market activity
• involved in banking, or an issuer of electronic money
• a Markets in Financial Instruments Directive (MiFID) investment firm or a UCITS management company
• a corporate body whose shares have been traded on a regulated market
• a funder of a master trust pension scheme
• a special register body, or a pensions or labour relations body

The subsidiary rule is the one that most often surprises owners of ordinary trading companies, so check it whenever a group is involved. GOV.UK suggests asking a legal professional if you are not sure.

When shareholders can ask for an audit

Even if the company is usually exempt, GOV.UK says you must get the accounts audited if shareholders who own at least 10% of the shares, by number or value, ask you to. This can be an individual shareholder or a group of shareholders. The request must:

• be made in writing
• be sent to the company's registered office address
• arrive at least one month before the end of the financial year that the audit is being asked for

Directors of companies with outside investors should diarise that date and keep the registered office address up to date.

The statement on the balance sheet

If you use the exemption, a set statement must appear on the balance sheet. GOV.UK gives the wording. In summary it confirms four things:

• that for the year in question the company was entitled to exemption from audit under section 477 of the Companies Act 2006, relating to small companies
• that the members have not required the company to obtain an audit under section 476
• that the directors acknowledge their responsibilities for complying with the Act on accounting records and the preparation of accounts
• that the accounts have been prepared under the provisions that apply to companies subject to the small companies' regime

Copy the wording from GOV.UK exactly. Companies House guidance also says that from 1 April 2028 companies claiming an audit exemption will need to give an enhanced statement from the directors, so check the current requirement before each filing.

Dormant companies and micro-entities

The GOV.UK guide to micro-entities, small and dormant companies says dormant companies that qualify as small do not need to be audited, and that micro-entities benefit from the same exemptions available to small companies. See our guides to dormant company accounts and micro-entity accounts for what each has to file.

Audited and audit-exempt accounts compared

Checklist: can you claim the exemption?

1. Find the start date of the financial year to see which limits apply.
2. Test turnover, balance sheet total and average employees against the limits. You need 2 of 3.
3. Read the articles of association for any audit requirement.
4. Check the list of companies that must be audited, including the subsidiary rule.
5. Confirm no valid shareholder request has reached the registered office in time.
6. Include the exemption statement on the balance sheet, which a director signs.

Worked example (illustrative)

"Fernbrook Joinery Ltd", an illustrative example, has a financial year running from 1 January to 31 December 2026, so the newer limits apply. Turnover is £1.8 million, the balance sheet total is £900,000 and it has an average of 14 employees. It meets all 3 limits. It is not a subsidiary or a regulated business, and its articles say nothing about audit.

One investor holds 15% of the shares and is considering asking for an audit of the 2026 accounts. For the request to count, it must be in writing and reach the registered office at least one month before the year end, so by 30 November 2026. If it arrives in time, the 2026 accounts must be audited.

The company and figures are invented for illustration and are not a real client.

Common mistakes

• Using the wrong limits. Go by the date the financial year began.
• Testing only one year. After the first year, the previous year counts too.
• Forgetting the group. A small subsidiary is not exempt just because it is small.
• Thinking exemption means no accounts. The filing duties and deadlines are unchanged.

How we can help

We do not carry out audits. We prepare annual accounts for small companies, check each year whether the exemption is available, include the correct statement and file with Companies House and HMRC. Company accounts start from £350 per year on a fixed fee. See our company accounts service, view our pricing, or contact us. GOV.UK has more on how to prepare annual accounts.