Most small UK companies do not need their accounts audited. Instead, the directors put a short audit exemption statement on the balance sheet. This article explains who qualifies, the one situation in which a qualifying company must still be audited, and what the statement says.
Who can claim exemption
There are three routes under the Companies Act 2006:
| Exemption | Who it is for |
|---|---|
| Section 477 — small companies | A company that qualifies as small (or micro) for the year: at least two of turnover up to £15 million, balance sheet total up to £7.5 million and 50 or fewer employees, for years beginning on or after 6 April 2025. |
| Section 479A — subsidiaries | A subsidiary whose UK parent guarantees its liabilities and files the guarantee and the group accounts with Companies House. |
| Section 480 — dormant companies | A company that has been dormant since the end of its previous financial year and qualifies as small. |
Some companies cannot claim the small companies exemption whatever their size — public companies, and those carrying on regulated activities such as banking, insurance or certain financial services. For the full size tests see FRS 105 vs FRS 102 Section 1A.
When members can insist on an audit
Even a qualifying company must have an audit if one is demanded by:
- members holding at least 10% of the nominal value of the issued share capital, or
- members holding at least 10% of any class of shares, or
- for a company limited by guarantee, at least 10% of the members by number.
The demand must be made in writing and deposited at the registered office during the financial year, and no later than one month before its end.
The statement on the balance sheet
To claim exemption, the directors must state on the balance sheet, above the director’s signature, that:
- the company is entitled to exemption from audit under the relevant section;
- the members have not required the company to obtain an audit; and
- the directors acknowledge their responsibilities for keeping accounting records and preparing the accounts.
Tax Optimiser prints this statement automatically on the statement of financial position of FRS 105 and FRS 102 Section 1A accounts, using the section 477 wording, or section 480 when you tick Dormant company in Company Information. You do not need to type it. Signing is covered in Validation, signing and signed accounts.
Changing from 1 April 2028 — companies claiming audit exemption will need to give an enhanced statement from the directors confirming the company is eligible. Companies House has not yet published the final wording. See Preparing for April 2028.
An audit exemption is not an accounts exemption
An exempt company still prepares full annual accounts, files them with Companies House, and sends them to HMRC with its Company Tax Return. Accounts prepared by an accountant without an audit may include an accountant’s report, which is a separate, optional document.
Does my small company need an audit?
Usually not. A company that qualifies as small for the year can claim exemption under section 477, unless it is a public company or in a regulated sector, or members with 10% of the shares demand an audit.
What are the audit exemption thresholds?
For financial years beginning on or after 6 April 2025 the company must meet two of: turnover up to £15 million, balance sheet total up to £7.5 million, and no more than 50 employees.
Can shareholders force an audit?
Yes. Members holding 10% of the nominal share capital or of any class of shares (or 10% of the members of a guarantee company) can require one by written notice at least one month before the year end.
What does the audit exemption statement say?
That the company is entitled to exemption under the relevant section, that members have not required an audit, and that the directors acknowledge their responsibilities for accounting records and preparing the accounts.
Do dormant companies need an audit?
No, provided the company has been dormant since the end of its previous financial year and qualifies as small. It claims exemption under section 480 instead.