Audit Exemptions for Small Companies and Micro-Entities
Small companies are able to claim an exemption from having an audit but only if they are eligible and wish to take advantage of it. If a company qualifies as a micro-entity then it can also qualify as a small company and as such may also take advantage of these exemptions.
For accounting periods beginning on or after 01/01/2016 to qualify for audit exemption, a company must qualify as small, in relation to that financial year. In other words it must meet any two of the following:
- annual turnover must be not more than £10.2 million
- the balance sheet total must be not more than £5.1 million
- the average number of employees must be not more than 50
Even if a small company meets these criteria, it must still have its accounts audited if a member or members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it; or – in the case of a company limited by guarantee – 10% of its members in number. The demand for the audit of the accounts should be in the form of a notice to the company, deposited at the registered office at least one month before the end of the financial year in question. The notice may not be given before the financial year to which it relates.
Entities that cannot claim exemption from audit as a small company
You must submit audited accounts to Companies House if the company falls into any of the following categories:
- a parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where:
- the group qualifies as a small group or would qualify if all the bodies corporate (which includes non-UK incorporated bodies) in the group were companies
- the turnover for the whole group is not more than £10.2 million net (or £12.2 million gross)
- the group’s combined balance sheet total is not more than £5.1 million net (or £6.1 million gross)
- a public company (PLC)
- a company that at any time in the financial year in question was —
- a company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID (ie Markets in Financial Instruments Directive) investment firm or a UCITS (ie Undertakings for Collective Investment in Transferable Securities) management company
- a company that carries on insurance market activity
- a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5))
Some subsidiary companies may be exempt from audit where they meet certain conditions for financial years ending on or after 1 October 2012, see our guidance on audit exemption for subsidiary companies for more information.
Some flat management companies that would otherwise qualify for exemption may have to prepare audited accounts to comply with the terms of their lease. If in doubt, you should consider seeking professional advice.
Requirements that a small company must comply with to claim audit exemption
If a small company qualifies for audit exemption, it may submit unaudited accounts to Companies House. In either case, the balance sheet must contain wording to the effect of the following statements above the director’s printed name and signature:
- For the year ending ………………(dd/mm/yyyy) the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.
- 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”
Audit exemption for small charitable companies
There not a specific category for audit exempt charitable companies in England and Wales or Scotland. They will qualify for audit exemption under company law in the same way as any other company. Charitable companies may also be subject to separate requirements for audit or other scrutiny of their accounts under charity law. For more information visit the Charity Commission’s website.
There were previously different thresholds for audit exemption for Northern Ireland charitable companies but, for financial years beginning on or after 1 January 2016 they may claim audit exemption as long as they meet the same criteria as other UK companies.
This replaces the previous thresholds for Northern Ireland charitable companies for financial years beginning on or after 1 January 2016. For financial years beginning prior to this date the thresholds to claim audit exemption for a small Northern Ireland charitable company remain:
- gross income must not be more than £90,000, and
- its balance sheet total for that year must not be more than £2.8 million.
Alternatively, for financial years beginning prior to 1 January 2016, a charity may be partially exempt from the requirement for an audit if there is a suitable accountants report to the accounts and the company meets both the following conditions in respect of a financial year:
- gross income must be more than £90,000 and not more than £250,000
- its balance sheet total for that year must not be more than £1.4 million
Northern Irish Charities that want to claim audit exemption for financial years prior to 1 January 2016 must show the following statements on their balance sheet above the director’s signature:
- For the year ended (insert date), the company was entitled to exemption under Article 257A(1) (or Article 257A(2) in the case of partial exemption) of the Companies (Northern Ireland) Order 1986. No members have required the company to obtain an audit of its accounts for the year in question in accordance with Article 257B(2).
- The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts.
- Small company/abbreviated accounts must also make the following statement on the balance sheet above the director’s signature:
- These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.