James Hadfield – Audit Partner
There are only four scenarios in which a company is exempt from having an audit:
- Dormant company
- Small and stand-alone company
- Small member of a small group
- Any size subsidiary of a UK parent with a parent guarantee
Companies that cannot qualify for audit exemption are those that breach the small threshold limits (outlined below) and cannot or choose not to take the subsidiary audit exemption, or certain types of companies (e.g. public companies, insurance companies etc.) The full list is set out in CA 2006, s. 478.
Small and Stand-alone Companies – do I need an audit?
Stand-alone companies that qualify as small companies under Companies Act 2006 are usually exempt from audit.
Definition of a small company:
A company is small if for both this year and last year it was not ineligible, and it met two out of three of the following criteria:
|Turnover||≤ £10.2 million|
|Balance Sheet Total (Total Assets)||≤ £5.1 million|
|Number of Employees||≤ 50 employees|
This applies to first financial year or takes two years to change. i.e. in relation to a subsequent financial year, where on its balance sheet date a company meets or ceases to meet the qualifying conditions that affect its qualification as a small company only if it occurs in two consecutive financial years.
I’m part of a Group – do I need an audit?
A SMALL GROUP:
If you are a member of a group, you can take the audit exemption if you are a small member (apply the limits given above) of a small group. To qualify as a small group, the group must meet 2 out of the 3 requirements, applying either net or gross thresholds.
|Requirement||Net Threshold||Gross Threshold|
|Turnover||≤ £10.2 million||≤ £12.2 million|
|Balance Sheet Total (Total Assets)||≤ £5.1 million||≤ £6.1 million|
|Number of Employees||≤ 50 employees||≤ 50 employees|
Net = as per the consolidated accounts
Gross= adding together the individual accounts before deducting intragroup transactions/ balances.
N.B. these thresholds are for the whole worldwide group of companies.
This applies to first financial year or takes two years to change. i.e. in relation to a subsequent financial year of the parent company, where on the parent company’s balance sheet date the group meets or ceases to meet the qualifying conditions that affects the group’s qualification as a small group only if it occurs in two consecutive financial years.
A group cannot qualify as small if at any time within the financial year to which the company’s relate it was a member of an ineligible group.
A group is ineligible if any of its members is:
a) A traded company;
b) A body corporate whose shares are admitted to trading on a regulated market;
c) An e money issuer; or
d) A small company that is an authorised insurance, company, a banking company, an e-money issuer, a MiFID investment firm.
If your company meets the requirements to be small itself, and the group it is part of is small and not ineligible, the company can take the audit exemption.
Any size subsidiary undertaking whose parent is established under the UK law can choose to take an exemption from audit through a parent guarantee. The subsidiary company must be included in the consolidated accounts drawn up by the parent undertaking. The exemption under s479A of the Companies Act 2006 will only be available with a UK parent guarantee.
The parent guarantee does not need to be from the immediate parent. The parent company indefinitely guarantees the subsidiaries liabilities that exist at the year-end by disclosure in the notes of its consolidated accounts and filing a form at companies house.
Contact Menzies Audit & Compliance team
The above doesn’t cover all circumstances and if you have any questions about whether your business needs an audit or to understand the exemptions and thresholds contact our audit team using the form below.