For financial years beginning on or after 6 April 2025, a private limited company can normally claim audit exemption if it meets at least 2 of these 3 tests: annual turnover of no more than £15 million, assets worth no more than £7.5 million, and 50 or fewer employees on average. The previous limits were £10.2 million turnover and £5.1 million assets, so a meaningful band of companies has become exempt for the first time. The rules are on GOV.UK's audit exemptions for private limited companies page.
The two-of-three test, old and new
| Test (meet at least 2 of 3) | Years beginning 1 Jan 2016 to 5 Apr 2025 | Years beginning on or after 6 Apr 2025 |
|---|---|---|
| Annual turnover | No more than £10.2 million | No more than £15 million |
| Assets (balance sheet total) | No more than £5.1 million | No more than £7.5 million |
| Average employees | 50 or fewer | 50 or fewer |
Watch the commencement wording: the new limits apply to financial years beginning on or after 6 April 2025. A company with a 31 March 2026 year end is still judged on the old thresholds for that year, because the year began on 1 April 2025, five days before the switch date. Its first year on the new limits is the one ending 31 March 2027.
There is a second timing rule underneath. For an established company, small company status, which the audit exemption follows, does not switch on and off from a single year's figures: under section 382 of the Companies Act 2006, meeting or ceasing to meet the conditions changes the company's status only where it happens in two consecutive financial years, while a company's first financial year is judged on that year alone. For the new limits there is also a transitional rule: when looking back at earlier years, the new thresholds are treated as if they had applied then too. So an established company's exemption is a two-year question answered against the right set of limits, never a one-year snapshot.
Who cannot claim exemption regardless of size
Some companies must be audited whatever their numbers: public companies, banks and insurers among others, as listed on the GOV.UK page. Two other overrides matter more often for owner managed companies. If your articles of association require an audit, the exemption is unavailable until the articles are changed. And shareholders holding at least 10% of the shares can demand an audit in writing, at least one month before the end of the financial year, and the company must then have one.
Exempt does not always mean audit-free is right
Some companies that could claim exemption choose an audit anyway, for practical reasons. Lenders and credit insurers read audited numbers with more confidence. Buyers in a sale process can take audited history at closer to face value, which can shorten due diligence. Groups often need audited subsidiary numbers regardless. And where ownership and management have separated, even partially, an audit can give both sides assurance. The decision is commercial: the fee set against what the assurance is worth to lenders, buyers and shareholders.
Example
Example. A company runs a 31 December year end, with turnover of £12 million, assets of £4 million and 60 employees. For its year beginning 1 January 2025 (old limits), it fails the turnover test at £10.2 million and fails the employee test at 50, so only the assets test is met: an audit is required, provided it also failed the old limits in its 2024 year (had it qualified as small in 2024, it would have stayed small for 2025). For its year beginning 1 January 2026 (new limits), turnover of £12 million now passes the £15 million test and assets of £4 million pass the £7.5 million test: two of three met, even though the employee count still fails. The two-year rule then needs checking rather than assuming: the transitional provision treats the new limits as having applied to the earlier years as well, and this company would have met them in 2025 too, so exemption is available for the 2026 year. A company whose figures only cleared the new limits in 2026 itself could reach a different answer, which is why an established company's position is never read off one year's numbers. Whether to drop the audit is then a separate, commercial question, and in this company's case its bank facility documents required audited accounts anyway, so nothing changed in practice.
What to do now
Three things shape the answer for a financial year: which set of thresholds applies given the year start date, whether the articles or any shareholder require an audit anyway, and what lenders or investors expect. Where exemption is newly available, dropping the audit is a choice the company makes, not a default, and an audit that is kept can be a source of insight as well as a compliance step.
Vision Consulting is a firm of Chartered Accountants and Registered Auditors, regulated by the ICAEW. Our audit page covers the service, and our accounting page covers statutory accounts.
Frequently Asked Questions
For financial years beginning on or after 6 April 2025: turnover of no more than £15 million, assets of no more than £7.5 million, and 50 or fewer average employees. A company needs to meet at least 2 of the 3 to claim exemption, subject to the usual exclusions, and for an established company the position generally has to hold over two consecutive years before its status changes.
The old ones (£10.2 million and £5.1 million), because that financial year began on 1 April 2025, which is before the 6 April 2025 switch date. Your first year under the new limits is the year ending 31 March 2027.
Yes. Shareholders holding at least 10% of the shares (or of any class of shares) can require an audit by writing to the company at least one month before the financial year ends.
Group companies are assessed on the group's aggregate position, and a company that is part of a larger, non-small group generally cannot claim the small company audit exemption. For a group, the turnover and assets limits can be met on either a net figure (after removing transactions within the group: £15 million and £7.5 million) or a gross figure (£18 million and £9 million), under section 383 of the Companies Act 2006. If you sit in a group, the assessment is a group question as well as a company one: both your own figures and the group's normally have to pass. Dormant subsidiaries and subsidiaries covered by a parent company guarantee follow different rules.
Not always. Banks, credit insurers, potential buyers and group parents often value audited numbers, and some facility agreements require them. Exemption gives the company the choice, and financing and exit plans bear on it as well as the fee saving.
Talk to our audit team
If you are unsure whether your company still needs an audit, or whether keeping one voluntarily makes sense, speak to David A White, Director and Head of Audit. In a first conversation we can look at your year start date, the two-of-three position, and what your lenders and shareholders need. Call 020 8554 2135 or use our contact page to request a call back.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances. Speak to us before acting.