UK Audit Exemption Thresholds: A CFO Checklist for 2026

Since 6 April 2025, UK audit exemption thresholds rose about 50% under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, reclassifying thousands of companies overnight.

For CFOs, this is not a compliance footnote. It changes who needs a statutory audit, how much a finance function spends on assurance, and what the directors’ report must now state. Companies with financial years starting on or after 6 April 2025 fall under the new rules immediately — and a transitional provision means many don’t have to wait the usual two consecutive years to benefit.

What Changed in the UK Audit Exemption Thresholds?

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 raised the monetary size thresholds used to classify companies under the Companies Act 2006. Turnover and balance sheet limits rose by roughly 50% across all three bands; employee headcount limits were left unchanged. Micro-entities now qualify at turnover up to £1 million and balance sheet total up to £500,000. Small companies qualify at turnover up to £15 million and balance sheet total up to £7.5 million. Medium-sized companies qualify at turnover up to £54 million and balance sheet total up to £27 million.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), the change applies to financial years beginning on or after 6 April 2025, and a transitional rule allows companies to assume the new thresholds also applied in the prior year — removing the usual requirement to meet the criteria for two consecutive years before reclassification takes effect.

Executive Action:

• Confirm your company’s accounting period start date against the 6 April 2025 cut-off before assuming the old thresholds still apply.
• Recalculate turnover and balance sheet totals against the new small-company limits (£15m / £7.5m) using FY2025/26 management accounts.
• Brief the audit committee or board on the reclassification before the next accounts sign-off cycle.

Does Your Company Now Qualify for Audit Exemption?

A company qualifies as small — and can therefore claim audit exemption — if it meets at least two of three tests: turnover up to £15 million, balance sheet total up to £7.5 million, and no more than 50 employees. Meeting the size test is necessary but not sufficient. Public companies, firms in the banking or insurance sectors, and companies that are part of an ineligible group remain excluded regardless of size.

According to Xero’s analysis of the reform, the higher thresholds are expected to reclassify roughly 133,000 UK entities into smaller size bands, with many becoming eligible for audit exemption for the first time. That is a large enough population that CFOs at mid-market groups should assume their subsidiaries, not just the parent, need re-testing.

Executive Action:

• Run the two-of-three test across every UK entity in the group, not just the ultimate parent.
• Check for statutory exclusions: PLCs, FCA/PRA-regulated firms, and companies within an ineligible group structure.
• Review shareholder agreements for standing audit-demand rights before assuming exemption is final.

How Should CFOs Decide Whether to Drop the Statutory Audit?

Qualifying for exemption and choosing to use it are two different decisions. Lenders often write audited accounts into loan covenants regardless of statutory requirements. Insurers, key customers and prospective acquirers may treat an audit as a proxy for financial control quality. Dropping the audit purely for the fee saving can create friction at the next refinancing, tender or fundraising round — exactly when a CFO needs those relationships to run smoothly.

Under section 476 of the Companies Act 2006, shareholders holding at least 10% of shares by number or value can still require an audit by written notice — a right that survives exemption and that CFOs should map against their shareholder register before recommending any change to the board.

Executive Action:

• Survey lenders, insurers and major customers on whether audited accounts are a contractual or covenant requirement.
• Model the fee saving against the assurance value of a voluntary audit, particularly ahead of any exit or refinancing.
• Document the board’s rationale for retaining or dropping the audit as part of the governance record.

What Should CFOs Do Before the Next Filing Deadline?

If exemption is confirmed, the directors’ report must include the specific exemption statement required under the Companies Act 2006, and the audit committee (where one exists) should formally note the change. This reform runs alongside Companies House’s parallel reforms under the Economic Crime and Corporate Transparency Act 2023 — covered in our CFO filing checklist — so finance teams are best served reviewing both changes in a single filing-readiness exercise rather than two separate projects.

Use INFORMD’s executive self-assessment tools to stress-test your assurance strategy, and our capital approval assessment template to formalise the board paper recommending exemption or continued audit.

Executive Action:

• Update the directors’ report exemption statement required under the Companies Act 2006 before the next accounts are filed.
• Align this review with Companies House’s identity verification and filing reforms under the Economic Crime and Corporate Transparency Act 2023.
• Brief the audit committee and external auditor, if retained, at least one quarter ahead of year-end.

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