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 specific criteria to qualify.
The current exemption criteria, known as the ‘small audit exemption’ (s477), require your UK company to meet at least two of the following three requirements:
- Turnover: £15 million or below.
- Balance sheet total (gross assets): £7.5 million or below.
- Average number of employees during the period: 50 or fewer.
Additionally, if a company is dormant, an audit is generally not required. However, the rules surrounding dormancy can be complex. In broad terms, a company must have had no significant accounting transactions during the financial year in order to qualify as dormant. If you are unsure whether your company qualifies, professional advice should be sought.
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 wider group also qualifies as small under the relevant company law provisions.
If the group exceeds at least two of the following thresholds, the UK company may be required to undergo a statutory audit:
- Turnover: £18 million gross.
- Balance sheet total (gross assets): £9 million gross.
- Average number of employees: more than 50.
There are further exemptions and provisions that may apply in certain circumstances. For example, a company does not automatically move into or out of the small company regime simply because it exceeds the thresholds in a single year. The applicable rules consider the company’s size classification over successive financial periods, meaning a statutory audit may not become necessary immediately.
The rules relating to subsidiaries within overseas groups can be complex, particularly where international ownership structures are involved. If you believe your company may qualify for an exemption, please speak to us for advice.
Penalties for failing to comply with an audit
Failing to comply with statutory audit requirements can carry significant consequences, including financial penalties and, in some cases, action against company directors. In addition, not having audited accounts where an audit is required can have a detrimental effect on your UK company’s ability to obtain funding, attract investment or satisfy stakeholder requirements.
It is important to establish whether your company genuinely qualifies for an exemption before deciding not to undertake an audit. An incorrect assumption could expose both the company and its directors to unnecessary risk.
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 information you need for effective decision-making and helping to shape your strategy for the future.
Your audit will also provide independent evidence of the integrity of your financial statements, giving reassurance to 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.
