An audit is an independent check of your company’s finances to confirm everything’s accurate and above board. Whether it’s legally required or not depends on your size and structure – but being prepared is always a smart move.
Here’s what triggers an audit, who’s exempt and how to stay prepared.
What is an audit?
An audit is a thorough, independent review of your business’s financial statements, covering everything from profit and loss to balance sheets.
Conducted by a third-party auditor, the goal of the process is to ensure that all of your records are accurate and truly reflect the performance of your company.
Think of it like going to the doctors for a check-up but for your finances – spotting any discrepancies or issues means you can make sure everything stays in good shape.
When is an audit required?
Whether an audit is required depends on your company’s turnover, assets and employee numbers. If your company meets two of the following three criteria for two consecutive years, you’ll need an audit:
| For periods starting on or after 1 January 2016: | For periods starting on or after 6 April 2025: | |
| Turnover | <£10.2m | <£15m |
| Total assets | <£5.1m | <£7.5m |
| No. of employees | <50 | <50 |
However, regardless of the size of your company, companies who fit the following criteria are required to undergo an audit:
- Public companies (unless dormant)
- Subsidiary companies (unless exempt)
- Authorised insurance companies
- Companies engaged in insurance market activities
- Companies involved in banking
- Issuers of electronic money
- MiFID investment firms
- UCITS management companies
- Special registered bodies
- Funders of master trust pension schemes
- Pensions or labour relations bodies
Who is exempt from an audit?
A company can qualify for an audit exemption if:
1. It’s dormant
Hasn’t performed any significant accounting transactions during the reporting period.
2. It qualifies as a ‘small’ company
Based on the criteria in the table above.
3. It’s a small member of a small group of companies
If your company is part of a group, check if it meets the small company exemption criteria. Then, assess if the group qualifies as a ‘small group’.
Under s479 of the Companies Act 2006, small groups are exempt from audits if:
- Turnover is under £10.2 million (net) or £12.2 million (gross)
- Assets are under £5.1 million (net) or £6.1 million (gross)
- There are fewer than 50 employees
The group must meet these criteria for two consecutive years to qualify, unless it’s the first year of operation.
4. It’s a subsidiary of a UK parent with a parent guarantee
A UK subsidiary can be exempt from an audit under s479a of the Companies Act 2006 if it meets these conditions:
- The UK parent company provides a guarantee under s479c
- The parent includes the subsidiary in its consolidated financial statements
- The parent discloses the audit exemption in the notes to the consolidated accounts
- The subsidiary’s directors submit the following to the registrar before filing the accounts:
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- A written notice confirming no members have requested an audit
- A statement as per s479c(1)
- A copy of the consolidated accounts including the audit report
Stay prepared for an audit
Making sure to maintain accurate financial records is essential for the audit process to go smoothly, even if your business is exempt. In case Companies House mandates an audit, businesses should prepare key documents including:
- All accounting records
- Business structure diagram
- Annual bank statements
- Breakdown of balance sheet amounts with supporting evidence (invoices, receipts)
- Aged debtors and creditors list
- Wage records and P11D returns
- Stock reports
- Hire purchase and leasing agreements
- VAT returns and calculations
Does your company need an audit?
The audit process doesn’t have to be stressful. It’s a vital part of running a business in the UK, and we’re here to make the process hassle-free.
For more information or guidance, get in touch today on 01942 816 512 or email:
Anna Heyes, Accounts & Audit Manager: anna.heyes@ekwgroup.co.uk