If your business is based overseas but has a UK subsidiary – or is part of a listed group – you may not be aware of the strict rules governing audit requirements in this country.
Although there are certain exemptions to a statutory audit, your company will need to meet certain criteria.
The current exemption criteria, known as the ‘small audit exemption’ (s477) requires your UK company to meet at least two of the following three requirements:
- Turnover: £10.2 million or below.
- Total assets: £5.1 million or below.
- Average number of employees in the period: 50 or fewer
Additionally, if a company is dormant an audit is not needed. However, to be classed as dormant there must be no bank transactions (bank charges, interest etc with the exception of Companies House payments)
It is also worth noting that if the UK subsidiary is part of a group, it is only possible to claim the ‘small’ audit exemption if the international group is also classified as ‘small’.
If the whole group exceeds any two of the following, an audit will be required for the UK company:
- Turnover: £12.2 million gross.
- Total assets: £6.1 million gross.
- Average number of employees: more than 50.
There are further exemptions. For example, if at least two of the thresholds have been breached in a year but you can prove that your company qualified for a ‘small’ exemption in the prior year, a UK statutory audit is not required.
Additionally, UK subsidiaries with an EEA parent company may be exempt, providing they were set up and have year-ends prior to 31 December 2020. However, the full rules relating to EEA parent company exemption are complex so if you believe your company qualifies, please speak to us for advice.
Penalties for failing to comply with an audit
Failing to comply with a statutory annual audit can carry stiff penalties – from fines to criminal proceedings against company directors. Additionally, not having audited accounts can have a detrimental effect on your UK company’s ability to obtain funding or future investments.
It is important to note that in circumstances where a company is not classed as completely dormant – i.e. it is still receiving bank charges, interest etc., an audit will still be necessary.
How can Midgley Snelling help?
We want to make your audit a positive experience that goes beyond simply reporting on your accounts.
Your audit gives us an opportunity to identify areas of your business that can be improved or made more efficient, while delivering the detailed data you need for effective decision-making and to shape your strategy for moving forward.
Your audit will also deliver independent evidence of the integrity of your accounts, providing reassurance to your customers, suppliers, actual or potential investors, banks and other finance providers.
If you would like to know more about our audit services for UK subsidiaries of international companies, please contact us.