Audit Threshold Change: An Audit Is More Than an Obligation

Your company may have just become “small” in the eyes of company law, even if nothing about it changed. From financial years beginning on or after 6 April 2025, the audit threshold and wider size limits that decide your reporting obligations rose by around 50%. The first accounts under the new limits are landing now, in 2026 year-ends.

For many companies, that appears to open the door to audit exemption. The temptation is obvious: drop the audit, save the fee. But an audit is more than a statutory obligation, and keeping it is often the smarter choice even when the law no longer demands one.

Here’s why keeping your audit usually pays, and why the exemption is narrower than it looks.

What’s Changed With the Audit Threshold

A company’s size is set by three tests: turnover, balance sheet total and average employees. You move size band when you meet, or stop meeting, two of the three for two consecutive years.

From periods beginning on or after 6 April 2025, a company is small if it meets two of these three:

• Turnover: not more than £15 million (up from £10.2 million).
• Balance sheet total: not more than £7.5 million (up from £5.1 million).
• Employees: not more than 50.

The medium-sized limits rose too, to £54 million turnover and £27 million balance sheet, with 250 employees. This was the first uplift since 2016, and it mainly offsets inflation since the limits were last set. Being small means you may qualify for audit exemption. It doesn’t mean exemption is the right call.

An Audit Is More Than a Statutory Obligation

An audit is not just a compliance cost. It’s independent assurance that your numbers are right, and that assurance has real value to the people who rely on you.

Lenders and banks lean on audited accounts when they price and approve finance. Investors and an overseas parent take far more comfort from numbers that have been independently checked. A clean audit history smooths a future sale or funding round, where a buyer’s due diligence will probe unaudited years hardest. And the audit process itself catches errors, tightens your controls and deters fraud, long before they become expensive problems.

Drop the audit and the saving shows up immediately. The cost shows up later, and usually at the worst moment.

The Exemption Is Narrower Than It Looks

Even setting the value aside, many companies that assume they now qualify simply don’t.

The biggest reason is the group test. Size isn’t judged on your UK company alone. It’s judged across the whole group, worldwide. So a modest UK subsidiary of a large overseas parent is usually not small for this purpose, however small its own numbers look. The group breaches the limits, and the subsidiary is carried up with it. Many UK subs assume they’re exempt and find they’re not.

Other conditions bite too. The two-year rule means a single year under the limits doesn’t change your status. Ineligible groups and regulated sectors can’t take the exemption at all. And shareholders holding 10% or more can demand an audit regardless. Working out which rules apply, in which order, is rarely a quick answer, and getting it wrong means filing accounts you weren’t entitled to file.

The Hidden Cost of Dropping It

The fee saving is easy to see. What it hides is harder to price until you need it.

Restarting an audit after a gap is more expensive than maintaining one, because the opening position has to be re-established. A lender or buyer who wanted assurance you no longer have can stall a deal or reprice it. An overseas parent relying on your figures for its own consolidation may find its group reporting harder, not easier. And without the discipline of an annual audit, control weaknesses tend to go unnoticed for longer.

None of this means an audit is right for every company. It means the decision deserves more thought than a line-by-line look at the fee.

Who Should Think Carefully

If your company sits near the audit threshold, this is the moment to weigh the value, not just the cost.

It matters most if you’re a UK subsidiary of an overseas group, where the group test often removes the choice anyway. It matters if you borrow, or expect to. And it matters if a sale or funding round is anywhere on the horizon, because that’s exactly when an unbroken audit history earns its keep.

Reaching for the exemption to save a fee can be a false economy. The right question isn’t “can we stop?” but “what does the audit protect?”

How Hamlyns Can Help

We help you make this decision on value, not just cost. Audit and assurance are central to what we do, and we’ll give you a straight view of what yours is worth to your business.

We confirm whether you even qualify for exemption, group test and all. We set out what an audit delivers for your lenders, investors and parent company. We carry out the audit where it serves you, and the right level of assurance work where a full audit isn’t needed. And we keep your filed accounts compliant whichever path you take.

If you’re weighing up whether to keep your audit, please get in touch with the Hamlyns team before you decide. You can also read our explainer on SRA Accounts Rules audits, or our summary of the FRS 102 changes in 2026. We’ll give you a clear answer in plain English, well before your filing deadline.