New Audit Exemption Opportunities from April 2025: Company Size Thresholds Redefined

New company size threshold changes will introduce wider access to audit exemptions for UK firms starting from 6 April 2025. The goal of these changes is to ease the administrative burden on companies by reducing reporting and audit requirements.

This article describes the effects of the updated exemption requirements and examines how they relate to corporate tax laws, specifically in relation to group arrangements and tax payment requirements.

New size threshold

	Micro		Small		Medium
	Previous	New	Previous	New	Previous	New
Turnover not more than:	£632k	£1m	£10.2m	£15m	£36m	£54m
Balance sheet total* not more than:	£316k	£500k	£5.1m	£7.5m	£18m	£27m
Monthly average number of employees, not more than:	10	10	50	50	250	250

It has been estimated by the Government that 113,000 companies, previously classified as small, have now become micro-entities, while 14,000 medium-sized businesses have reclassified as small entities.

As a result of these company size threshold reclassifications, the new micro-entities are no longer required to prepare a director’s report and can file abridged accounts. For entities that have transitioned into the small entities regime, the impact is more significant as they are now exempt from the requirement to prepare statutory annual audit accounts.

Audit Exemptions from 6 April 2025

From financial years beginning on or after 6 April 2025, a company may qualify for audit exemption if it meets at least two of the following criteria for two consecutive financial years:

	From 6 April 2025	Pre-6 April 2025
Turnover not exceeding	£15 million	£10.2 million
Balance sheet total not exceeding	£7.5 million	£5.1 million
Average number of employees not exceeding	50	50

The exemption must be explicitly claimed with a statement in the company’s financial statements asserting that the company qualifies for audit exemption under the Companies Act 2006 (typically Section 477).

For the “two-year consecutive rule,” the legislation contains a transitional provision that permits accountants to assume that the new criteria applied during the previous financial year as well. 

Audit Exemption for Subsidiaries (Section 479A)

In addition to size-based exemptions, a subsidiary company can claim audit exemption under Section 479A if:

• Its parent company is established in the UK (note: post-Brexit, EEA parent companies no longer qualify);
• The parent company prepares consolidated financial statements covering the subsidiary;
• The parent company provides a statutory guarantee for all of the subsidiary’s outstanding liabilities.

This exemption also requires a formal claim and must be supported by relevant documentation, including a statement of guarantee filed with Companies House.

Ineligibility for Audit Exemption

The following companies cannot claim audit exemption regardless of their size:

• Public limited companies (PLCs);
• Companies involved in financial services, insurance, or regulated industries;
• Companies that are part of ineligible groups (those that include a listed company);
• Companies whose shareholders representing at least 10% of share capital (or voting rights) have formally requested an audit.

Shareholder must request the audit in writing, sending the communication to the company’s registered office, at least one month before the end of the financial year.

Consolidated Accounts Exemption

Parent companies in the UK are generally required to prepare consolidated financial statements that include all subsidiaries. However, under Section 399 of the Companies Act 2006, they may claim exemption if the group qualifies as small. From 6 April 2025, a group is considered small if it meets at least two of the following thresholds:

• Aggregate turnover of no more than £15 million net (or £18 million gross)
• Aggregate balance sheet total of no more than £7.5 million net (or £9 million gross)
• Average number of employees of 50 or fewer

The term “net” refers to intra-group transactions being excluded, while “gross” includes all transactions.

The parent company may be eligible for the exemption if its standalone accounts meet at least two of these net thresholds. If the parent company’s standalone accounts do not meet the net thresholds, then the consolidated group accounts are considered, and the gross thresholds apply.

A parent company, or any of its group members, that is a listed entity or a regulated financial services business cannot opt out of preparing consolidated accounts, even if it meets the criteria for exemption.

Unlike the audit exemption, which requires companies to meet the criteria for two consecutive years, the consolidated accounts exemption is determined annually based on the financial year in question.

Corporation Tax Compliance and Link to Thresholds

Regardless of whether a company is exempt from audit or consolidation, corporation tax obligations remain unchanged. All companies must:

• File a CT600 return annually
• Calculate and pay corporation tax on taxable profits
• Maintain proper accounting records to support their tax position

As of 2025/26, corporation tax rates are structured as follows:

• 19% for profits below £50,000
• 25% for profits over £250,000
• Marginal Relief applies for profits between £50,000 and £250,000, adjusting the rate gradually from 19% to 25%

These thresholds are adjusted based on the number of associated companies. For example, with two associated companies (three in total), the small profits threshold becomes £16,667, and the upper limit becomes £83,333.

This same principle applies when determining whether a company must pay tax via quarterly instalments. The standard threshold for quarterly payments is £1.5 million, but this is divided by the number of companies within the group as of the first day of the accounting period. A company with four group companies at the start of the year would face an adjusted threshold of £375,000.

Corporation Tax Instalment Payments:

Companies are classified into different payment regimes based on their taxable profits:

• Small companies (profits ≤ £1.5 million, adjusted for the number of group companies at the start of the year) pay Corporation Tax 9 months and 1 day after the end of the accounting period.
• Large companies (profits between £1.5 million and £20 million, adjusted) must pay tax in four equal instalments, due in months 7, 10, 13, and 16 from the start of the accounting period.
• Very large companies (profits over £20 million, adjusted) must pay instalments earlier, in months 3, 6, 9, and 12.

These thresholds and payment dates assume a 12-month accounting period and are proportionally adjusted if the period is shorter. Failing to adhere to the correct payment schedule can result in interest charges and penalties.

Relationship Between Audit, Consolidation Exemptions & Corporation Tax

A company may qualify for audit exemption or consolidation exemption as a small company based on its turnover or net assets. However, this does not automatically grant it small company status under corporation tax rules, which are determined by profits.

Therefore, a company might meet the criteria for audit exemption and consolidation exemption but still be required to pay quarterly tax instalments if its profits exceed the threshold for small companies under corporation tax regulations. These rules operate independently, with corporation tax focusing on profits rather than turnover or assets.

Conclusion

The new company size thresholds, effective from 6 April 2025, aim to reduce the administrative burden on UK firms by easing audit and consolidation requirements. These changes will allow many companies to benefit from exemptions, simplifying their reporting obligations. However, it is crucial to note that these exemptions do not alter corporation tax obligations, which remain based on profits.

Directors and finance teams should consult experts to guarantee eligibility and accurate filings, allowing companies to make well-informed decisions that satisfy financial objectives and regulatory obligations.