For many UK subsidiaries of international groups, the question of whether an audit is required can be surprisingly complex. Misunderstanding the rules can lead to missed deadlines, penalties, and for the directors the possibility of criminal proceedings.
When is an audit required?
In the UK, all companies are subject to audit unless they qualify for an exemption. Whether a UK subsidiary qualifies depends on both its size and the size of its wider group.
Subsidiary Size Thresholds
A UK subsidiary may be exempt from audit if it meets at least two of the following criteria:
- Annual turnover of £10.2 million or less
- Total assets of £5.1 million or less
- Average of 50 or fewer employees
These thresholds apply for accounting periods starting before 6 April 2025. For periods commencing on or after 6 April 2025, the thresholds increase to:
- Turnover: £15 million or less
- Total assets: £7.5 million or less
- Employees: 50 or fewer
However, if the company exceeds two of these thresholds for two consecutive years, an audit becomes mandatory.
In the case of a UK subsidiary also being a parent company, it’s sub-group must also meet the group thresholds which are set out below.
Group size matters too
Even if the UK subsidiary is small, the size of the entire group—including the overseas parent—must be considered. If the group exceeds two of the following thresholds, the UK subsidiary may still require an audit:
Pre-6 April 2025 thresholds:
- Net turnover: £10.2 million / Gross: £12.2 million
- Net assets: £5.1 million / Gross: £6.1 million
- Employees: 50 or more
Post-6 April 2025 thresholds:
- Net turnover: £15 million / Gross: £18 million
- Net assets: £7.5 million / Gross: £9 million
- Employees: 50 or more
Note: “Net” refers to after adjustment for intra-group transactions and balances; “Gross” refers to totals before elimination of such items.
Ineligible groups and companies and other considerations
Some groups and companies are automatically ineligible for audit exemption, regardless of size. These include:
- MiFID investment firms
- UCITS management companies
- Authorised insurers or banks
- E-money issuers
- Entities listed on a UK regulated market (e.g. London Stock Exchange)
Additionally, dormant companies (including dormant parent companies) may be exempt under section 480 of the Companies Act 2006, provided they meet certain criteria.
What should you do next?
If you’re unsure whether your UK subsidiary requires an audit, it’s important to seek professional advice early. At Hazlewoods, we offer tailored assessments to help you determine your obligations and avoid unnecessary risk. If you would like to explore this further, please contact one of the team.
Head over to our Audits & Assurance page to see how else we can support you and your business.
