Limited company audit exemption
Most small private limited companies don’t need an audit of their annual accounts - unless the company’s articles of association say it must or enough shareholders ask for one.
In this article
Check if your company must have an audit
If your company financial year ends on or before 30 September 2012
Your company may qualify for an audit exemption if your company has both:
- an annual turnover of no more than £6.5 million
- assets worth no more than £3.26 million
If your company financial year ends on or after 1 October 2012
Your company may qualify for an audit exemption id it has at least 2 of the following:
- an annual turnover of no more than £6.5 million
- assets worth no more than £3.26 million
- 50 or fewer employees on average
What are small and medium sized UK limited companies?
The legal definition of a small and medium-sized UK limited company will also be changed so that now more companies will be able to prepare accounts with fewer disclosures than for 'larger' UK companies. This could lead to an increase in the number of people considering company formation. In the past, audits were seen as the 'cost' a limited company had to pay for the privilege of limited liability. Company audits provide reassurance to shareholders, lenders, and creditors that the annual company accounts are reliable. Companies House has confirmed that 93% of the complaints it receives are about the credibility of filed accounts from audit-exempt companies.
However, a small UK limited company still has to produce full statutory accounts, so there remains scope for cutting more 'red tape'. The accounting requirements for smaller companies remain under review. Not all UK limited companies with a turnover under £6.5 million will come within the new audit exemption provisions because there are criteria other than the turnover. In particular, companies not classed as small or whose total assets exceed £3.26 million must still have a company audit.
A Public limited company and those carrying on particular types of business, such as insurance broking and financial services, will remain subject to a company audit. Shareholders can require that an audit is carried out, for example if they are not involved in the day-to-day running of the company and require reassurance that their investment is being properly looked after.
Audit exemption statement
You must include the following statement on the balance sheet of your accounts if you’re using an audit exemption:
The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.
The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.
These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.
If shareholders ask for an audit
Even if your company’s usually exempt from an audit, you must get your accounts audited if shareholders who own at least 10% of shares (by number or value) ask you to. This can be an individual shareholder or a group of shareholders.
They must make the request in writing and send it to the company’s registered office address.
The request must arrive at least 1 month before the end of the financial year that the audit is being asked for.
Companies that must have an audit
Your company must have an audit if at any time in the financial year it’s been:
- a public company (unless it’s dormant)
- a subsidiary company (unless it qualifies for an exception)
- an authorised insurance company or carrying out insurance market activity
- involved in banking or issuing e-money
- a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
- a corporate body and its shares have been traded on a regulated market in a European state
The existence of company audit exemption makes it more attractive for sole traders and partnerships to consider company registration to gain the protection of limited liability. However, there are tax consequences of such a change and it is important to seek legal advice on these matters.