A UK subsidiary needs a statutory audit unless it qualifies for an exemption. The answer depends on more than its own turnover: the wider group’s size, activities and ownership structure can also affect the position.
A small UK operation should therefore check its obligations before assuming that an audit is unnecessary.
Check Company and Group Size
The small-company audit exemption under section 477 of the Companies Act 2006 normally requires both the subsidiary and its wider group to qualify as small, with no relevant exclusions.
For financial years beginning on or after 6 April 2025, the following limits apply.
| Measure | Individual company | Worldwide group |
|---|---|---|
| Annual turnover | No more than £15 million | No more than £15 million net or £18 million gross |
| Total assets | No more than £7.5 million | No more than £7.5 million net or £9 million gross |
| Average employees | No more than 50 | No more than 50 across the group |
The company and group must each normally satisfy at least two of the three conditions; meeting every limit is not necessary. Group net figures eliminate intragroup transactions and balances, while gross figures are measured before those eliminations.
The assessment covers the entire worldwide group, not just the UK subsidiary or its immediate parent. A subsidiary can consequently qualify as small for its own accounts but still need an audit because its group does not qualify as small.
Use the Right Financial Year
For financial years beginning between 1 January 2016 and 5 April 2025, the individual company limits remain £10.2 million turnover, £5.1 million assets and 50 average employees. The financial year’s start date, rather than its end date, determines which thresholds apply.
Established companies and groups generally follow a two-year rule when changing size categories; first-year assessments differ. Transitional provisions allow the increased thresholds to be applied to the previous year when assessing size for the first year under the new limits.
What About Overseas Parents?
An overseas parent does not automatically mean that a UK subsidiary needs an audit. A qualifying small subsidiary in an eligible small worldwide group may still claim the small-company exemption.
However, an overseas parent cannot itself provide the qualifying guarantee for the separate section 479A exemption: the parent undertaking giving that guarantee must be established under UK law. An international group with a suitable UK parent undertaking within its structure may still qualify if every statutory condition is met.
The Parent Guarantee Exemption
Section 479A provides another route that is not restricted to small subsidiaries, although certain companies are excluded. Its principal conditions include:
- Unanimous agreement: Every member of the subsidiary agrees to the exemption for the relevant financial year.
- A qualifying UK parent: The parent undertaking provides the statutory guarantee under section 479C.
- Audited consolidated accounts: The subsidiary is included in the parent’s qualifying consolidated accounts, with the exemption disclosed in the notes.
- Complete filings: The members’ agreement, Form AA06, consolidated accounts, auditor’s report and consolidated annual report are delivered to Companies House on or before the subsidiary files its accounts, within the filing deadline.
The guarantee is a significant commitment, not simply paperwork. It covers all the subsidiary’s outstanding liabilities at the relevant year end until they are satisfied in full, and creditors can enforce it against the parent.
Other Requirements and Exemptions
Size alone does not settle the question. Directors should also check:
- Company and group activities: Banks, authorised insurers and certain other regulated entities face exclusions; ineligible group membership can prevent the small-company exemption.
- Shareholder rights: Qualifying shareholders can require an audit under section 476, generally using the 10% threshold and written notice at least one month before the financial year ends.
- Articles and agreements: Articles of association may require an audit, while lenders, investors or parent companies may impose separate contractual or reporting requirements.
- Dormancy: A separate exemption may be available under section 480, subject to its conditions and exclusions; simply having no sales does not establish dormancy.
Does a Group Audit Count?
Auditing the parent’s consolidated accounts does not automatically remove the subsidiary’s individual statutory audit requirement. A valid exemption must still apply.
Equally, an audit-exempt subsidiary may need audit procedures for group reporting; that work supports the group audit opinion and is distinct from an individual statutory audit.
How Reflex Accounting Helps
Reflex Accounting’s auditors help directors and finance teams understand their obligations and plan the appropriate audit work. Support includes:
- Assessing audit requirements: Reviewing company size, ownership and group circumstances to establish whether a statutory audit is needed.
- Planning the engagement: Agreeing an audit timetable, identifying key risks and clarifying the supporting records required.
- Coordinating group work: Working with subsidiary finance teams and group reporting arrangements to support an organised audit process.
- Providing independent assurance: Delivering statutory or voluntary audits and communicating relevant financial reporting and internal-control findings.
Unsure whether your UK subsidiary needs an audit? Contact Reflex Accounting’s audit team to discuss your company, group structure and reporting deadlines.
