Audit Exemptions for Private Limited Companies in the United Kingdom

An audit, put simply, is a process of examining, reviewing, and verifying a company’s books and records. It is an annual affair meant to ascertain if a company’s records faithfully represent its results in a financial year. Coming to an audit opinion regarding the accuracy of company records can enhance confidence in the said company’s integrity. It also generates reports on the company’s cash flow, existing concerns, and inconsistencies, serving as an essential feedback mechanism.

Elected auditors will examine books and records to determine correspondence and compliance with legislation and standards. Though it can be an indispensable accountability tool in evaluating a company, it necessitates a tremendous amount of preparation. As you can probably imagine, this requires a significant investment of time and resources along with incursion of fees. If planned properly, it need not be expensive, and in some cases, your company can be exempted from auditing altogether.

Yes, you read it correctly; not all companies need to be audited (we reckon you would be relieved to know). There are rules to such exemption, which is precisely what we will explore today. In this article, we will be diving into the essentials of what qualifies your private limited company for an audit exemption. Read on to find out if your company is eligible!

 

Where Does My Company Stand?

In the United Kingdom, companies are, by default, required to have audits until they qualify for audit exemptions. To be eligible for an audit exemption, your company must meet specific conditions in the Companies Act 2006. Additionally, your company needs an audit if your articles of association deem so or if shareholders request it. Knowing what exempts your company from an audit can save you valuable time and money. Respectively small companies, dormant companies, and non-profit-making companies were subjected to public sector audits. Appeal to audit exemptions can be made under sections 477, 480, and 482. This article will focus on requests under Section 477 for small companies.

 

Exemptions for Small Companies

Qualifying small companies in the United Kingdom are entitled to audit exemptions. These are known as “Audit Exemption Thresholds” or “Small Threshold Limits,” or “Audit Thresholds.” To qualify, the company needs to have an annual turnover of less than £6.5 million. The company’s assets must not exceed £3.26 million, and the company has, on average, 50 or fewer employees.

At least two of the above conditions have to be satisfied for companies to be considered small. These conditions may vary depending on which financial year you are dealing with. The latest one starts on or after 1st January 2016. These terms are the most basic. For a more comprehensive outline, refer to Part 16 of The Companies Act 2006.

Provided the shareholder(s) holds at least 10% of total shares individually or collectively. However, as mentioned before, shareholders can still request an audit even if these conditions are met. A written request has to be sent to the company’s registered office to initiate the process. The office should receive this document at least one month before the end of a financial year.

It can present some challenges to going through the fine print independently. Therefore, it would be ideal if your company could acquire secretarial assistance to aid you in this matter. This ensures that your company will have maximal and comprehensive statutory compliance.

 

Drafting an Audit Exemption Statement

Upon determining your company is eligible for an audit exemption, your next step would be drafting a legal statement. This statement is known as the “Audit Exemption Statement,” citing compliance with Section 477 of the Companies Act 2006. Section 477 is related to small companies. This document is to be attached with the balance sheet of your company’s account.

The document also needs to specify that members (shareholders) had not requested an audit. This statement is based on Section 476, where members of sufficient share value are entitled to audit requests. Directors must also acknowledge their responsibilities for compliance with the Companies Act 2006. This acknowledgement is related to preparing accounting records and the records themselves.

In short, there is a need for information regarding applicable sections, balance sheets, and declarations by members and directors. These declarations are necessary and are explicitly stated in the Companies Act 2006. Upon completing the Audit Exemption Statement, it can be submitted to the Companies House through your company’s account. You may contact the Companies House office to know more about the procedures.

 

Other Information

Though we have only explored exemptions for small companies, dormant and non-profit companies are also (if qualified) exempt. Your company must apply based on which is relevant before drafting an Audit Exemption Statement. Understand that despite these exemptions, there are exceptions to the exceptions, also known as “Ineligible.” Hence, it is essential to consult with legal experts on this matter.

The “Companies House” is the main regulatory body of reference for this entire task. This body regulates companies in various ways, from registration to various other affairs relating to the statutory compliance of companies. According to the law, all private limited companies must be registered with the Company House.

For more information, you can refer to gov.uk and start browsing. There are comprehensive guidelines and resources that you can refer to enrich your understanding. Remember that auditing remains a statutory requirement unless a company can produce a statement warranting otherwise. Understanding the conditions and leveraging your company’s eligibility can effectively save valuable time and money.

 

Key Takeaway

We hope this article has been informative and given you a rudimentary understanding of audit exemption. Auditing can be very resource-intensive, but fortunately, it is not mandatory for all companies. Small and dormant companies may qualify for audit exemptions if they meet the stated criteria and thresholds.

You can contact 3E Accounting if you’re looking for auditing services in the United Kingdom.