Audit exemptions in the UK have been dramatically revised for financial years beginning on or after April 6, 2025. Many organisations that previously required a statutory audit will now be eligible for exemptions under the revised levels. It is not as simple as comparing turnover to the £15 million maximum. The financial year-end date, balance sheet total, number of employees, group structure, and type of the firm can all influence whether you require a statutory audit.
For organisations that audit their 2025/26 or 2026/27 accounts, timeliness and categorisation correctness might be critical. Applying an improper threshold may result in inaccurate accounting. This guide discusses the audit threshold laws in the UK and how to assess whether your firm needs an audit.
What Are the New UK Audit Thresholds?
The most significant shift is the rise in the financial threshold used to determine whether a firm is classified as small. A private firm might be classed under the small company regime if it meets any two of the following three tests:
- Turnover of £15 million or lower
- Balance sheet total is £7.5 million or less.
- An average of 50 or fewer employes
The previous limits were £10.2 million of turnover, £5.1 million of balance sheet total, and 50 employees. The employee barrier remains stable, although the turnover and balance sheet criteria have dramatically increased. Furthermore, these figures indicate the primary threshold values for the small business audit exemption test. Except in certain circumstances, a small business is normally exempt from statutory audit requirements.
These adjustments are provided for by the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, which came into force on 6 April 2025. These regulations contain the revised size criterion for fiscal years beginning on or after this date.
If the company is close to these criteria, the move can have a significant impact. A firm with a turnover of £12 million could have exceeded the small company turnover barrier under the prior guidelines. Now, the turnover criteria itself is not going to prevent the small firm classification as long as the other requirement is satisfied.
When Do the New Audit Thresholds Apply?
This is possibly the most crucial thing to remember. The criteria outlined in these new regulations do not apply automatically just because the accounting periods fall within the year 2026. This marks the start of the fiscal year, which is important. These revisions apply to fiscal years beginning on or after April 6, 2025. All previous periods remain governed by the previous rules.
Consider two companies with a 31 December year end.
Company A: Year beginning 1 January 2025
Its financial year runs from 1 January 2025 to 31 December 2025. Because the accounting period began before 6 April 2025, the old thresholds apply:
- £10.2 million turnover
- £5.1 million balance sheet total
- 50 employees
Company B: Year beginning 1 January 2026
Its financial year runs from 1 January 2026 to 31 December 2026.
This period began after 6 April 2025, so the new thresholds apply:
- £15 million turnover
- £7.5 million balance sheet total
- 50 employees
This is especially important for firms that assemble their accounts several months after the end of the financial year. The date the accounts are prepared has no impact on whether the firm meets the higher or lower requirements. This is determined at the beginning of the financial year. The measure also includes a provision that permits corporations to use the higher standards to determine their size in financial years beginning and ending on April 6, 2025. Take notice of the transition period, and don’t assume that two years must pass.
Old vs New Small Company Audit Thresholds
The change becomes clearer when the two sets of figures sit side by side.
| Criteria | Previous rules | New rules |
|---|---|---|
| Financial year begins | Before 6 April 2025 | On or after 6 April 2025 |
| Turnover | £10.2 million or less | £15 million or less |
| Balance sheet total | £5.1 million or less | £7.5 million or less |
| Average employees | 50 or fewer | 50 or fewer |
The turnover threshold value is now £4.8 million higher, while the balance sheet figure is £2.4 million higher. As a result, there is more scope for a growing firm to slip into the small business category. At the same time, the firm must fulfil two of the three requirements. Meeting the turnover threshold limit does not automatically protect the company from audit.
A company can generate £14 million in revenue while having assets worth £9 million and employing an average of 70 employees. Two of the three requirements have been exceeded, and consequently the firm cannot be classified as tiny under normal conditions. The company must assess all three criteria, not simply turnover.
Who Can Claim Audit Exemption?
Qualifying private limited firms are eligible for small companies’ audit exemption if they meet at least two of the following three standards for accounting periods beginning on or after April 6, 2025:
- Turnover of £15 million or less
- Balance sheet total of £7.5 million or less
- 50 or fewer employees
Groups and subsidiaries may have different criteria. Therefore, while claiming an exemption, one should analyse one’s total business structure. Exempted corporations must still keep acceptable accounting records and issue suitable financial statements, as well as pay all applicable taxes. Audit exemptions cannot be used to minimise tax liabilities. Shareholders who own 10% of the relevant share capital can also raise audit demands under certain conditions.
Who Still Needs a Statutory Audit?
Not all firms meet the new requirements for exemption from audits. Some of these include:
- Public companies
- Banking companies
- Authorised insurance companies
- Electronic money issuers
- MiFID investment firms
- UCITS management companies
- Companies with shares traded on a regulated market
- Pension and labour relations bodies
Others, such as subsidiaries, charities, or special interest groups, have their own auditing standards. A company’s Articles of Association may provide that an audit is required. Shareholders who are qualified may also exercise their rights by demanding an audit. Reaching the qualifying values of £15 million sales, £7.5 million balance sheet, and 50 employees does not automatically relieve a business from audit requirements.
What the Changes Mean for January Year-End Companies
The appropriate threshold is determined by the financial year’s start date. For a company whose financial year began on January 1, 2025 and ended on December 31, 2025, the previous criteria of £10.2 million turnover and £5.1 million balance sheet total apply. The company’s succeeding financial year, beginning on January 1, 2026, can be subject to the revised criteria of £15 million and £7.5 million. It means that an organisation that was previously ineligible for audit exemption under the old threshold can become eligible under the new criteria.
What Should Businesses Do Now?
Before preparing your accounts, check:
- When your financial year began
- Turnover and balance sheet total
- Average employee numbers
- Group or subsidiary status
- Any industry-specific audit requirements
- Whether your articles or shareholders require an audit
The two-out-of-three test should be assessed alongside the relevant exemptions and legal requirements.
How Reflex Accounting Can Help With UK Audit Requirements
Deciding whether your organisation is exempt from audits is not always straightforward, especially for groups, regulated corporations, and organisations close to the threshold. Reflex Accounting provides UK organisations with both obligatory and voluntary auditing services, including audit planning, financial statement verification, internal control review, and audit reporting.
If your business needs audit services or you are unclear how the new threshold can affect your needs, Reflex Accounting experienced auditors assist you with the appropriate audit services. As the changes in the audit threshold for 2025 are now in effect for qualifying financial years, assessing your position ahead of time can save you from any compliance issues and ensure that your accounting is in accordance with the rules.
