Audit exemptions: Is your company exempt from an audit?

Did you know that around 98% of UK companies qualify for audit exemption under current rules? Yet many leadership teams remain unsure whether their business actually needs one, or what’s changing in 2025. The rules can feel complex, but understanding them can save time, money, and stress.

In this article, we’ll simplify what an audit is, outline which companies must have one, and explain the new thresholds that apply to accounting periods beginning on or after 1 January 2025. By the end, you’ll know whether your organisation is exempt and whether a voluntary audit could still be the right strategic choice.

What is an audit?

An audit is an independent review of a company’s financial statements, carried out by a qualified auditor. Its purpose is to check whether those accounts give a true and fair view of the company’s financial position. Think of it as a financial health check, confirming that the numbers your business reports are accurate and comply with accounting standards.

For leadership teams, an audit can build confidence among shareholders, lenders, and potential investors. It adds credibility to your financial reporting and can uncover weaknesses in internal controls before they become real problems.

Which organisations must have an audit?

In the UK, a large percentage of limited companies don’t need a statutory audit, but there are some clear exceptions. If your business is public, part of a corporate group, or exceeds certain size thresholds (for turnover, assets, or employees), an audit is mandatory. The same applies to regulated sectors such as financial services, insurance, and charities above specific income levels.

Even if your company is technically exempt, shareholders holding at least 10% of shares can still request an audit. That means it’s worth checking your company’s position carefully each financial year.

The change in audit thresholds: for accounting periods starting on or after 1 January 2025

In 2025, the UK Government is raising the thresholds that determine whether a company must have an audit. The change is designed to ease administrative burdens on small and medium-sized enterprises (SMEs), meaning more businesses will qualify for audit exemption.

Here’s how the numbers compare and what they mean in practice. If your company stays within these limits, it will be classed as a small company and therefore not required to have a statutory audit (unless other specific rules apply).

To qualify for exemption, a company must meet at least two out of three of these criteria for two consecutive financial years. However, if your company surpasses the thresholds in its first year, it will need an audit for that accounting period. For many growing SMEs, this change means 2025 could be the first year they no longer require an audit.

It’s also worth noting that companies within a group structure may not automatically qualify for exemption, even if the individual entity is small. If the parent company exceeds the thresholds or the group as a whole is classified as large, the subsidiary may still be required to have an audit.

What if my company exceeds the threshold?

If your company exceeds the new thresholds for two consecutive financial years or trading for the first year, you’ll be required to have a statutory audit. This means appointing a registered auditor to review your accounts and issue an independent opinion on whether they’re accurate and compliant.

While that may sound daunting, an audit can bring real benefits. It can strengthen stakeholder confidence, support funding applications, and highlight opportunities to improve internal controls. For larger or fast-growing companies, an audit isn’t just a legal requirement, it’s also a strategic tool for better financial governance.

Which organisations are exempt from an audit?

Most small-sized private limited companies in the UK are exempt from a statutory audit, as long as they meet at least two of the three size criteria we outlined earlier. This exemption recognises that smaller businesses face lower financial risk and helps reduce compliance costs.

However, some organisations must still have an audit, regardless of their size. Audit exemption does not apply to:

• Public limited companies (PLCs).
• Authorised insurance brokers or financial services firms.
• Charities with income above the audit threshold.
• Companies within a corporate group where the parent company does not qualify for exemption.
• Any company where shareholders owning at least 10% of shares request an audit.

Note that even if a subsidiary appears small, it may still be treated as part of a group for audit purposes if the parent company provides a parental guarantee or has significant control. In such cases, the subsidiary may be required to have an audit, even if it meets the normal size criteria for exemption.

If your company doesn’t fall into any of these categories and meets the size criteria, it’s likely you’re exempt, but it’s always worth confirming with your accountant or auditor.

We’re exempt, but should we commission a voluntary audit?

Even if your company qualifies for exemption, a voluntary audit can still be a smart decision. Many growing businesses choose to commission one to gain deeper financial insight, strengthen governance, and build trust with investors, lenders, or potential buyers.

An audit can also provide reassurance to boards and shareholders that financial systems are working as intended and that any risks are being managed effectively. For fast-scaling companies, that independent validation can be a real advantage during fundraising, tendering, or merger discussions.

In short, while not mandatory, a voluntary audit can offer value far beyond compliance. It’s an investment in confidence and credibility.

How can Gerald Edelman Help?

Understanding audit requirements can feel complex, especially with the new thresholds coming into effect. Our team helps businesses determine whether they qualify for exemption, stay compliant with evolving regulations, and decide whether a voluntary audit is right for them.

If an audit is required, we can perform it efficiently and professionally giving leadership teams the confidence that their financial reporting meets the highest standards. Whether you’re reviewing your company’s position or preparing for your next financial year-end, we’re here to guide you through every step.

If you’d like to discuss your audit requirements or upcoming changes in more detail, get in touch with our Audit Team today.