"We're a small company, so we don't need an audit." For most small businesses that's true - and it saves a lot of time and money. But the exemption isn't automatic in every case, and there's one situation that can take directors by surprise: a shareholder who asks for an audit.
This post explains who can skip an audit, when a shareholder can insist on one, and the statement your directors sign to claim the exemption.
What an audit is, and why most small companies don't need one
An audit is an independent check of your accounts by a registered auditor, who gives an opinion on whether they show a true and fair view. It's thorough, which is why it's also expensive.
The law recognises that for most small companies the cost outweighs the benefit, so it lets them opt out. The company still has to prepare proper accounts, file them with Companies House and send them to HMRC with its tax return - it just doesn't need them audited.
The three ways to be exempt
The Companies Act 2006 has three main exemptions:
| Exemption | Who it's for |
|---|---|
| Section 477 - small companies | Companies that qualify as small for the year, including micro-entities |
| Section 479A - subsidiaries | Subsidiaries whose UK parent company guarantees their debts and files the guarantee with Companies House |
| Section 480 - dormant companies | Companies that have been dormant since the end of their previous financial year |
For financial years starting on or after 6 April 2025, your company counts as small if it meets at least two of these three tests: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and 50 or fewer employees. We looked at those thresholds in more detail in What the 2025 reporting changes mean for your business.
Heads up - some companies can't use the small companies exemption however small they are. That includes public companies and businesses in certain regulated areas, such as banking and insurance.
The 10% rule: when shareholders can insist on an audit
Even if your company qualifies for exemption, it must have an audit if one is demanded by:
- shareholders holding at least 10% of the nominal value of the company's issued shares, or
- shareholders holding at least 10% of any one class of shares, or
- for a company limited by guarantee (with members rather than shareholders), at least 10% of the members.
The request has to be in writing and delivered to the company's registered office during the financial year - and no later than one month before the year end. A request that arrives later doesn't count for that year.
Here's how it can play out. Imagine a company owned by three people. Two of them hold 88% of the shares between them and run the business; the third holds 12% and isn't involved day to day. If the third shareholder loses confidence in how the company is being run, they can write to the company and require an audit - and the directors can't refuse, even though the company is small.
A small company's audit exemption belongs to the company, but a 10% shareholder can take it away for the year.
It doesn't happen often, but it's worth knowing about if you have minority shareholders - particularly in family companies or after a falling-out between founders.
The statement on the balance sheet
To claim the exemption, your directors must include a statement on the balance sheet, above the director's signature. It confirms three things:
- the company is entitled to exemption from audit under the relevant section
- the members haven't required the company to get an audit
- the directors acknowledge their responsibility for keeping proper accounting records and preparing the accounts
If the statement is missing, the accounts don't meet the rules for an unaudited company. So it matters, even though it's only a few lines long.
What's changing in 2028
From 1 April 2028, under the Economic Crime and Corporate Transparency Act, companies claiming audit exemption will need to give an enhanced statement from the directors, confirming that the company is genuinely eligible. Companies House hasn't published the final wording yet, so there's nothing to change today - but it's a sign that directors will be expected to check eligibility properly rather than tick a box.
It's one of several changes arriving on the same date. We've covered the whole package in Companies House changes to filing in April 2028.
How TaxOptimiser can help
We print the right audit exemption statement on your balance sheet automatically - section 477 for small companies and micro-entities, or section 480 when you mark the company as dormant - so you don't have to write it yourself. We'll update the wording when the enhanced statement is published. For the detail, see our help article on audit exemption for small companies and micro-entities.
The short version
If your company is small, you almost certainly don't need an audit. But check you're not in an excluded sector, remember that a 10% shareholder can ask for one, and make sure the directors' statement is on the balance sheet. From 2028 that statement will need to say a little more.