Since 6 April 2025, the UK Government has increased audit thresholds, reducing compliance burdens for many businesses. These changes will affect both individual companies and groups, allowing more businesses to qualify for audit exemption.
New audit thresholds for individual companies and groups
A company or group qualifies as small or medium if it meets two of the three criteria below:
| Threshold Measure | Company | Group | |||
| Old | New | Old | New | ||
| Periods commencing | Up to 5 April 2025 | From 6 April 2025 | Up to 5 April 2025 | From 6 April 2025 | |
| Small Business | Annual Turnover | <£10.2 million | <£15 million | <£10.2 million net, or <£12.2 million gross |
<£15 million net, or <£18 million gross |
| Total Assets | <£5.1 million | <£7.5 million | <£5.1 million net, or <£6.1 million gross |
<£7.5 million net, or <£9 million gross |
|
| Employees | <50 | <50 | <50 | <50 | |
| Medium Business | Annual Turnover | <£36 million | <£54 million | <£36 million net, or <£43.2 million gross |
<£54 million net, or <£64 million gross |
| Total Assets | <£18 million | <£27 million | <£18 million net, or <£21.6 million gross |
<£27 million net, or <£32 million gross |
|
| Employees | <250 | <250 | <250 | <250 | |
This means that businesses falling below these new limits will no longer be legally required to undergo an audit, unless they are part of a group or subject to specific industry regulations.
Transition and “two-year” rule
The legislation introduces a transitional provision for applying the two-year consecutive rule, ensuring that companies and LLPs can benefit from the threshold uplift at the earliest opportunity.
For financial years beginning on or after 6 April 2025, this provision permits audit preparers to assume that the revised thresholds were already in effect during the prior financial year, facilitating a smoother transition.
Worked example: How the changes affect businesses
Let’s consider an owner-managed business, ABC Ltd, which currently meets the following criteria:
- Annual turnover: £12 million
- Gross assets: £6 million
- Employees: 45
Under the current audit thresholds, ABC Ltd meets two of the three criteria, meaning it must undergo a statutory audit.
However, under the new thresholds effective from 6 April 2025, ABC Ltd will only meet one of the three criteria (turnover below £15 million, assets below £7.5 million, and employees below 50). As a result, it will no longer require a statutory audit.
What should businesses do?
For owner-managed businesses, these changes present an opportunity to reassess financial reporting needs. While audits may no longer be mandatory, they still provide valuable assurance to stakeholders, lenders, and investors.
Businesses should consider whether voluntary audits or alternative financial reviews could still be beneficial.
Additionally, companies nearing the existing thresholds should carefully assess the two-year consecutive rule, as they may still be required to undergo an audit for one additional year before the revised limits come into effect.
Final thoughts
The increase in audit thresholds is a positive step for owner-managed businesses, reducing compliance costs and administrative burdens. However, businesses should carefully evaluate whether an audit remains beneficial for financial transparency and credibility.
If you have any questions about how these changes impact your business, feel free to reach out to TWP Accounting LLP for expert guidance.
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