From 6 April 2025, the audit exemption thresholds changed

The audit exemption thresholds determine whether a company requires a statutory audit and are based on the same thresholds for determining company size. The thresholds increased in April 2025, affecting accounting periods starting on or after 6 April 2025, meaning fewer businesses will require one. While many businesses may become exempt from an audit as a result, there are still huge benefits to companies in continuing to be audited.

In this blog, I’ll explain the potential audit requirements in 2025 and consider the benefits of retaining an annual audit for your business.

Understanding the changes to audit exemption in 2025

In 2024, the UK government announced changes to the company size and audit exemption thresholds that took effect from 6 April 2025.

The changes are designed to reduce reporting requirements and simplify financial reporting.

Companies that meet the new thresholds will be exempt from statutory audit requirements.

New company size thresholds

The monetary size threshold for companies will change on 6 April 2025 and are set out in the table below:

These changes simplify accounting requirements, reduce the burden on smaller companies, and form the basis for the audit exemption thresholds for small companies, highlighted in the next table below.

Audit exemption thresholds changes

The changes are set out in the table below:

Companies that exceed 2 of the 3 new thresholds will be required to have a statutory audit.

If you breached the thresholds in the current year for the first time, you can still qualify as small for one further year as long as you qualified as small in the previous year.

Companies that are part of a group must also meet the group size thresholds. Each company will need to consider the consolidated turnover, gross assets, and employee threshold at each relevant level to consider its size and the ultimate parent company level for statutory audit consideration purposes. Even if the group falls within the statutory audit regime, it may still be possible to claim other audit exemptions.

There are certain circumstances where an audit exemption cannot be taken, as follows:

• Companies with a parent or subsidiary company must also consider the group’s size and structure when determining eligibility for audit exemption.
• Companies that are authorised insurance companies, e-money issuers, or banking companies are not eligible for audit exemption.
• Companies exempt from statutory audit requirements may still be required to have an audit in certain circumstances, such as a requirement from their lenders. Companies whose articles of association mandate an audit or where shareholders owning at least 10% of the company request an audit will still be required to be audited. Charities have different audit thresholds, and these changes do not apply to them.

Impact of audit threshold changes on financial reporting

There is no doubt that these changes will reduce the financial reporting burden on companies and take some current medium-sized entities out of audit requirements.

However, companies that exceed the new thresholds will be required to produce more detailed financial statements in future.

Voluntary audits

Even if a company is exempt from statutory audit requirements, it may still choose to have a voluntary audit.

Even if your business doesn’t meet the threshold for requiring an audit, there are still many benefits to having it audited.

What are the advantages of an external audit?

An external audit can help a business owner and a business in the following ways:

Provides credibility – Having an external auditor verify your financial statements can add credibility to your business. If you’re looking to raise finance for growth or plan to sell your business, audited accounts will increase the likelihood of achieving your goals.

Improves internal systems, processes, and controls – Here at Barnes Roffe, our audit team doesn’t just focus on your numbers and finances. During the audit process, a good auditor will gain a deep understanding of your business. This makes them well placed to examine your business in detail, including your systems and processes, and recommend changes or improvements.

Identify weaknesses and risks in a business – An audit can identify weaknesses and risks in your business that you may not be aware of. You can then act on this information and take preventative or corrective action. A good auditor will have a commercial perspective to help them identify issues in areas such as contracts, overdependence, or weaknesses in processes and systems.

Gives you a platform to make commercial decisions – The audit report can help you to make better business decisions now and in the future. You could use an audit and its results and recommendations as the business case for change.

Identify fraud – Auditors can occasionally identify fraud within a business. If your business has multiple directors, an audit can hold all directors and staff accountable. Having external people check your financials can minimise fraud when people in the business know there will be an independent review of the figures.

Give shareholders confidence – An external audit can give shareholders peace of mind and confidence that there are no issues or fraud and that the company is being well run. This reassurance can be crucial for shareholders not involved in the day-to-day running of the business.

Increase your business value – Business value is impacted by things like the systems and controls a business has in place and the amount of risk it faces. Having good procedures and systems in place and minimising overall risk will also add to a business’s value, and an audit can help improve these areas and increase business value.

Implementation and next steps for financial years beginning on or after 6 April 2025

The changes to the audit exemption thresholds will take effect from April 2025 for companies with financial years beginning on or after 6 April 2025.

We recommend that companies review their current reporting obligations and assess how the changes impact their business.

Businesses exempt from statutory audit requirements should consider the implications of the changes on their financial reporting requirements and the loss of the other benefits that an audit can bring to a business (see above).

Seek professional advice

If you think your business is affected by the changes to the company size or audit exemption thresholds, we recommend that you seek professional advice to ensure the criteria have been applied correctly and that you are able to claim the appropriate exemptions.

If you have multiple shareholders, are looking for funding, or are selling your business, we’d advise keeping an annual audit as this encourages good working practices and adds credibility to your financial statements.

Contact us for more help and advice on audit exemption and the benefits an audit can bring to your business.

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