The Audit Exemption Map After April 2025: How Britain's Threshold Uplift Reshaped Who Needs a Statutory Auditor — and Who Still Volunteers

The Framework Britain Actually Uses

UK statutory audit requirements rest on a deceptively simple framework. Sections 475 to 484 of the Companies Act 2006 set the obligation and its exemptions. A company needs an audit unless it qualifies as small — and is not a member of an ineligible category.

The small company test, set out in section 382 (as amended), uses three criteria. Meet two of three and the company is small for the financial year. The April 2025 uplift, effected by the Small Companies and Groups (Accounts and Directors' Report) Regulations 2025 (SI 2024/1303), changed the numbers but left the structure intact.

The threshold shift: before and after

A company crossing two of those three lines is medium-sized or large and must have a statutory audit. The employee headcount — the one criterion that did not move — now does more of the disqualifying work. A company with 51 employees needs an audit regardless of its balance sheet size.

Who cannot claim the exemption even if small

Section 478 lists the entities that must have an audit irrespective of size. The key exclusions:

• Public companies (PLCs)
• Authorised insurance companies and banking companies
• E-money issuers
• MiFID investment firms
• UCITS management companies
• Trade unions and employers' associations (where the members' superannuation scheme exemption does not apply)
• Any company whose articles, a shareholder notice under section 476, or a contractual obligation requires one

A private company limited by shares that meets the small-company test and falls outside the excluded categories is audit-exempt. That describes roughly 4.9 million of Britain's 5.5 million companies.

The Population Maths: Who Moves Where

Companies House does not publish a running tally of companies by size band, but BEIS longitudinal small business survey data and FRC Key Facts and Trends reports yield a reasonable estimate.

Before the April 2025 uplift, roughly 5.1 million companies on the register qualified as small — approximately 93% of the total. Perhaps 60,000–80,000 sat in the band between the old thresholds and the new ones: turnover £10.2m–£15m or balance sheet £5.1m–£7.5m, but with 50 or fewer employees.

These are the companies the uplift freed. They are not micro-entities. They tend to be established private companies — manufacturers, wholesalers, mid-market service firms — that grew past the old thresholds but stayed under 50 headcount.

Estimated company distribution by size band, post-April 2025

Sources: BEIS Business Population Estimates 2025; FRC Key Facts and Trends 2025; Companies House register snapshot.

The medium-sized thresholds (£36m turnover, £18m balance sheet, 250 employees) were also uplifted in April 2025 — from the previous £36m turnover and £18m balance sheet figures. Wait. The medium thresholds were in fact £36m turnover and £18m balance sheet before the uplift. The April 2025 changes raised the small company thresholds closer to the medium ceiling, which remains unchanged. The practical effect: a narrower medium band. Fewer companies now sit in the medium tier; more sit in the small tier.

The Micro-Entity Distinction

A micro-entity is a subset of small company. The thresholds — set by the Small Companies (Micro-Entities' Accounts) Regulations 2013 and adjusted for inflation-linked reviews — define the band within which a company may file the stripped-down abridged accounts permitted by FRS 105.

A micro-entity is automatically audit-exempt (it is small by definition). The micro-entity also benefits from lighter filing obligations: no requirement to file a directors' report, and the profit and loss account can be excluded from the public filing entirely.

The April 2025 uplift did not directly amend the micro-entity thresholds. But by widening the small company band, it expanded the pool of companies eligible for the full audit exemption while not eligible for micro-entity filing simplifications. These newly exempt companies must still file full small-company accounts under FRS 102 Section 1A — including a profit and loss account once ECCTA's end-of-filleted-accounts provisions take full effect.

Filing obligations by size tier

The Voluntary Audit Anomaly

Perhaps the most interesting feature of the UK audit market is the voluntary audit. A significant minority of companies that qualify for audit exemption nevertheless obtain one.

The FRC estimates that roughly 8–12% of companies eligible for audit exemption choose to be audited. The drivers vary:

• Lender covenants. A bank facility agreement that requires audited financial statements trumps section 477.
• Shareholder agreements. Minority investors — particularly private equity and venture capital — routinely require audit as a condition of investment, even where the Companies Act does not.
• Supplier and customer due diligence. Some supply-chain approval processes treat audited accounts as a minimum threshold.
• Pre-sale preparation. A company anticipating a disposal within 2–3 years will often commission audits voluntarily to give a buyer a clean due-diligence record.
• Director preference. Some boards simply prefer the discipline and the external assurance — particularly where the shareholders are also the directors and want a second pair of eyes on the finance function.

For the 60,000–80,000 companies that crossed the exemption line in April 2025, the voluntary audit decision is the immediate practical question. A company with £12m turnover and a £20m bank facility will almost certainly keep its auditor. A family-owned wholesaler with £13m turnover and no external debt may not.

The decision matrix: will a newly exempt company keep its audit?

Our estimate: perhaps 15–20% of the newly exempt population will retain their auditor voluntarily. The rest will drop audit — saving roughly £8,000–£20,000 per year in audit fees, depending on complexity.

Group Complications

Section 479A — covered in detail in another piece on this site — provides a parent company guarantee route to subsidiary audit exemption. Where a parent undertaking guarantees the subsidiary's liabilities under section 479C, and the subsidiary meets the small-company test, the subsidiary's audit obligation falls away.

The April 2025 uplift interacts with section 479A in one important respect: a subsidiary that previously exceeded the small threshold at the subsidiary level (but whose group was audited) may now qualify independently. This simplifies the filing — the subsidiary no longer needs to rely on the parent guarantee mechanism at all. It is simply audit-exempt in its own right.

For groups, the size test applies at the group level (sections 383 and 466). A parent company whose group exceeds the small thresholds must have a group audit even if the parent itself is individually small. The April 2025 uplift likewise applies at group level: a group with aggregated turnover of £13m and 45 employees that previously needed a group audit may now qualify for the group audit exemption.

Interaction with ECCTA's Transparency Agenda

There is a tension here. One of the Economic Crime and Corporate Transparency Act 2023's central objectives was to improve the reliability of the Companies House register. The end of filleted accounts, the identity verification regime, the lawful-purpose statement on the confirmation statement — all push toward a higher-integrity register.

Yet the April 2025 threshold uplift has reduced the number of companies that must submit audited financial statements. For good or ill, more companies will now file unaudited accounts with Companies House. The registrar will rely — as it always has — on the directors' certification that the accounts give a true and fair view.

Two mitigations are worth noting:

1. ECCTA's full P&L mandate. Even unaudited small-company accounts will, once the relevant provisions commence, be required to include a full profit and loss account. The days of the filleted balance sheet with no P&L disclosure are numbered. An unaudited full P&L is a materially richer disclosure than a filleted unaudited balance sheet.

2. The registrar's new querying power. Sections 15A–15C of the Companies Act 2006 (inserted by ECCTA) give the registrar power to query filings that appear inconsistent or incomplete. While this is not an audit function, it does impose a backstop that did not previously exist.

What a Director Should Actually Do

If your company's financial year began on or after 1 April 2025, and you now qualify as small under the uplifted thresholds, the steps are:

1. Check your articles. A small number of companies have articles that require an audit regardless of the statutory position. If yours does, the uplift does not help you.
2. Check your banking documents. A covenant requiring audited accounts will override the exemption. Do not assume the bank will waive it — most will not.
3. Check your shareholders' agreement. Minority-protection provisions frequently include an audit right or requirement.
4. If none of the above apply, notify your auditor. The auditor will need to issue a section 519 statement on ceasing to hold office. This is not a resignation that triggers a section 520–525 process; it is simply the expiry of a term that the company has chosen not to renew. But the auditor will still write to the company confirming there are no circumstances connected with the cessation that should be brought to the attention of members or creditors.
5. Prepare for the end of filleted accounts. ECCTA section 64 is not yet fully in force for all companies, but its direction is clear. The small company that drops audit should still prepare full P&L disclosures internally — because the public filing requirement is coming.

The Numbers in Sum

Conclusion

The April 2025 threshold uplift is not a deregulatory free-for-all. It is a sensible recalibration of lines drawn in 2008 prices. A company with £12m turnover, 40 employees, and a £4m balance sheet does not present materially different audit risk than one with £9m turnover under the old thresholds. The uplift merely acknowledges that inflation has redefined what "small" means.

The bigger story is the voluntary audit — the market mechanism that keeps audit in place where creditors and investors actually want it, regardless of where the statutory line falls. The uplift does not dismantle that. It just lets owner-managed businesses without external stakeholders keep the £15,000 they were spending on a service they did not need.

The question to watch over the next three years is whether ECCTA's transparency machinery — full P&L filing, registrar querying powers, identity verification — proves an adequate substitute for the auditor's signature on the batch of accounts that just crossed the exemption line.