The UK’s new audit thresholds: what you need to know

The rules have changed, could your business be affected?

For the first time since 2016, the financial thresholds that determine whether a UK company requires a statutory audit have been significantly increased. These changes came into effect for financial years beginning on or after 6 April 2025, meaning businesses with a 30 April 2026  year end are among the first to feel the impact.

The new rules, introduced through The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, increase the monetary size definitions for micro, small and medium-sized entities. The changes aim to reduce complexity, remove onerous reporting burdens on smaller entities and reflect price changes since the last definition amendment.

What are the new thresholds?

To qualify as a small company, a business must meet at least two of the following three criteria:

• Turnover of £15 million or less (up from £10.2 million)
• Balance sheet total of £7.5 million or less (up from £5.1 million)
• Average number of employees of 50 or fewer (unchanged)

To qualify as a medium-sized company, a business must meet at least two of:

• Turnover of £54 million or less (up from £36 million)
• Balance sheet total of £27 million or less (up from £18 million)
• Average number of employees of 250 or fewer (unchanged)

The turnover and balance sheet limits have both risen by roughly 50% — the employee thresholds remain the same.

Who does this affect and from when?

The scale of these changes is significant. It is estimated that:

• around 14,000 companies will no longer qualify as medium-sized
• some 6,000 companies will no longer qualify as large.

For businesses moving into the small companies regime, the practical benefits include:

• exemption from a statutory audit
• no requirement to produce a strategic report
• simpler accounting and reduced administrative workload.

If your financial year began on or after 6 April 2025, it is worth reviewing your position now.

The transitional provision: you may benefit sooner than you think

Under normal circumstances, a company must meet the qualifying criteria for two consecutive years before its classification changes. However, to help businesses take advantage of the new thresholds as soon as possible, the legislation includes a transitional provision. Companies assessing their size for financial years beginning on or after 6 April 2025 can assume that the new thresholds applied in the previous year, meaning businesses can benefit immediately, rather than waiting for two consecutive years under the new rules.

In practical terms, this means that if your turnover and balance sheet figures fall within the new small company limits for your current financial year, you may be able to claim audit exemption straight away, without needing to have been below the threshold in the prior year.

Does this mean you should stop having an audit?

Not necessarily. While there are cost savings, there are also good reasons why many businesses will choose to retain a voluntary audit even where one is no longer legally required. An audit can:

• identify weaknesses, risks and control gaps that may not otherwise come to light
• support better commercial decision-making through independent scrutiny
• strengthen credibility with banks, investors and other stakeholders
• provide assurance to directors and shareholders, particularly in businesses with multiple owners
• help deter and detect fraud through an independent review of the financials.

It is also worth noting that shareholders holding at least 10% of shares can formally request a statutory audit, regardless of company size, so it is always worth considering the views of your shareholder base before opting out.

Additional considerations for group structures

These thresholds also apply to group classifications, meaning parent companies must assess group-level figures to determine whether consolidated accounts or a group audit are required. Even if an individual subsidiary appears small on its own, it may still require an audit if the wider group exceeds the relevant thresholds.

What should you do now?

If you think these changes may affect your business, we recommend:

1. Reviewing your most recent financial information against the new thresholds
2. Considering your group structure, if applicable and assessing size at a consolidated level
3. Weighing up the benefits of a voluntary audit against the cost saving of opting out
4. Taking professional advice before your next year end to ensure your classification is correct.

The interaction between individual company size, group structures, transitional provisions and the two-year rule can be complex and it is important to get it right.

The next step

Every business is different, and the right decision will depend on your specific circumstances. If you are unsure whether these changes apply to you, or whether retaining a voluntary audit still makes sense our team would be happy to talk it through.