If you are running a small or medium-sized enterprise, you have probably asked yourself: when does your business need an audit? The rules changed for financial years beginning on or after 6 April 2025, so it is worth taking a clear, practical look at where the line now sits and what an audit can do for you. In brief, a statutory audit is a formal, independent examination of your financial statements. Many SMEs are exempt, but not all. Some businesses choose to be audited anyway because the process improves financial discipline, strengthens lender and investor confidence, and helps owners understand the numbers that drive performance and cashflow.
Context matters. The UK business base is large and diverse, with 5.7 million private sector businesses at the start of 2025 (ONS, 2025). That breadth means thresholds aim to focus mandatory audits where they add the most public value, while allowing smaller entities to benefit from proportionate reporting. Nonetheless, audit can be required even if you consider the business “small”. There are also circumstances where an audit is not strictly required but is sensible. This guide explains the current thresholds, common triggers, and the practical benefits, so you can make a confident, informed decision. If you need tailored advice, our team supports ambitious SMEs across sectors, with particular depth in science and technology – learn more about us at Richardsons.
The statutory thresholds – what changed from April 2025
The Companies Act sets the audit requirement, and the Government has increased the company-size thresholds for financial years starting on or after 6 April 2025. Your company is exempt from a statutory audit if it meets at least two of the following three conditions (Companies House/GOV.UK):
- Annual turnover: No more than £15 million.
- Balance sheet total: No more than £7.5 million.
- Average employees: 50 or fewer.
When does your business need an audit – even if you are “small”?
Even where the size test points to exemption, certain situations remove or override it:
- Shareholder request: If shareholders holding at least 10 percent of shares by number or value make a written request, received at least one month before year end, an audit is required.
- Group considerations: Subsidiaries may rely on parent-company guarantees in some structures, but groups that are ineligible or exceed size limits can still trigger audit requirements at subsidiary level.
- Regulation-specific cases: Certain regulated businesses, entities receiving particular grants, or those subject to loan covenants may need an audit regardless of size.
Beyond compliance – why many SMEs still choose an audit
Legal thresholds tell only part of the story. An audit can be a strategic choice:
- Credibility with stakeholders: Banks, investors, and major customers often view audited accounts as a higher-assurance signal. That matters when bidding for contracts, negotiating facilities, or raising capital.
- Robust financial controls: The audit process highlights control weaknesses and process gaps, which can reduce error and fraud risk, and improve cashflow visibility.
- Sharper insights: A good auditor challenges estimates and accounting policies. That scrutiny can surface opportunities to refine margins, pricing, and working-capital discipline.
- Readiness for growth or exit: If you plan to scale, attract external investment, or prepare for sale, maintaining audited accounts shortens due diligence and reduces friction.
A wider economic backdrop also influences stakeholder expectations. The Office for Budget Responsibility forecasts modest GDP growth of around 1.0 percent in 2025, underscoring why lenders and investors prize reliable data when allocating capital (OBR, 2025).
Practical triggers to review your audit position
Consider reassessing your need for audit if any of the following apply:
- Rapid revenue growth: Crossing, or expecting to cross, the £15 million turnover mark.
- Asset expansion: A significant equipment purchase or IP capitalisation pushing net assets towards £7.5 million.
- Hiring plans: Headcount expansion that moves average employees towards or above 50.
- Debt or investment: New facilities, covenant packages, or term sheets referencing audited accounts.
- Grant funding: Public or mission-driven programmes may stipulate audited financial statements.
- Group changes: Becoming part of a wider group or undertaking acquisitions can change eligibility.
How to prepare – efficient steps that make audit easier
Preparation reduces disruption and keeps fees predictable. We advise clients to focus on three areas:
- Year-end readiness: Fixed asset registers, stock counts, bank reconciliations, and revenue cut-off analyses completed and reviewed before the auditor arrives.
- Control evidence: Clear documentation of key controls, such as segregation of duties, approval limits, and change management around finance systems.
- Technical judgements: Early position papers on revenue recognition, impairment, R&D capitalisation, and provisions, including the data and assumptions used.
And keep documentation tidy:
- Accounting policies: Current, signed-off, and aligned with UK GAAP.
- Board minutes: Up to date, with decisions and approvals clearly recorded.
- Contracts: Organised and accessible, especially for major customers, suppliers, and lenders.
Choosing audit voluntarily – when it pays to do more
Some SMEs adopt a voluntary audit for one or two cycles to “reset” financial discipline or to prepare for a transaction. Typical scenarios include:
- Debt renegotiation: Independent assurance strengthens the proposition when seeking improved terms.
- Equity fundraising: Investors often move faster when a recent audit exists.
- Supplier or customer due diligence: Where a key counterparty demands comfort over covenant strength.
- R&D-intensive businesses: An audit can complement robust R&D accounting, especially where capitalised development costs are material.
Frequently asked questions
If I am under all three thresholds, am I definitely exempt?
Not always. Shareholder requests, covenants, grants, or group factors can still require an audit. Check your constitution, financing documentation, and group structure. See GOV.UK guidance.
What if my numbers fluctuate year to year?
Eligibility is assessed per financial year. If you are near the limits or expect material change, plan early. We can model threshold scenarios and advise on implications.
How do UK thresholds fit the SME picture?
SMEs dominate the UK economy – 5.64 million businesses had 0 to 49 employees at the start of 2025 (ONS, 2025). That is why proportionate reporting is important, and why some SMEs still opt for an audit to stand out.
When does your business need an audit – our view and how we help
If you are asking when does your business need an audit, start with the statutory test, then consider commercial reality. Mandatory audits apply where at least two size thresholds are exceeded, where shareholders representing 10 percent call for one, where regulation requires it, or where group arrangements make it necessary. However, the better question is often: what level of assurance will accelerate your plans over the next 12 to 24 months? For some, a voluntary audit creates the trust and discipline that unlock growth. For others, a lighter-touch independent review achieves the right balance of cost and benefit.
We help SMEs interpret the rules, anticipate changes, and prepare efficiently. Our auditors take a practical, technology-enabled approach that respects your time. For science and technology clients, we align audit work with R&D, capitalisation, and grant conditions, so the audit supports rather than disrupts operations.
If you would like a clear, no-obligation view on your eligibility and options, please get in touch – we will assess the thresholds, your stakeholder expectations, and the case for assurance, then outline a practical plan that fits your goals. When does your business need an audit? We can answer that for you.
