Most UK companies can now legally skip the annual audit: the small-company thresholds rose in April 2025 to £15 million turnover and £7.5 million balance sheet, and subsidiaries of UK groups have a separate route — the parental guarantee exemption — even where the group is anything but small. Whether skipping is wise is a different question from whether it is lawful, and both halves deserve more thought than "the auditor's bill goes away".
The small-company exemption: the new, bigger club
For financial years beginning on or after 6 April 2025, a company is audit-exempt if it meets two of three conditions: turnover no more than £15 million, gross assets no more than £7.5 million, and no more than 50 employees — roughly 50% higher than the old money limits, pulling a wide band of established businesses out of mandatory audit for the first time. The usual mechanics apply: the two-year rule smooths one-off spikes, and a parent company must measure its whole group against aggregate limits (£15 million net / £18 million gross turnover), so a modest holding company atop a large group is not "small".
The exclusions are absolute regardless of size: public companies, banks, insurers, e-money issuers, MiFID investment firms — and any member of an ineligible group containing one of those. And a right that surprises boards: shareholders holding 10% or more can force an audit by written notice a month before year end, a lever minority investors in family companies use more than you would think.
The subsidiary route: audit exemption by guarantee
A subsidiary that fails the size test can still escape audit under section 479A — if its parent guarantees it. The conditions are precise: the parent must be established in the UK (the old EEA-parent route died with Brexit), every shareholder of the subsidiary must agree in writing each year, and three things must reach Companies House before the filing deadline — the members' notice, form AA06 containing the parent's statutory guarantee, and the parent's audited consolidated accounts, which must both include the subsidiary and disclose its exemption.
The catch is the guarantee itself, and it deserves reading slowly: the parent guarantees all of the subsidiary's outstanding liabilities at that year end, until they are satisfied. It is public (on the register, visible to every creditor), open-ended in duration for the liabilities it covers, and renewed by choice each year — but each year's guarantee lives on for that year's liabilities. Groups adopt the exemption for the fee savings and then discover the side effects: banking covenants that count guarantees, trade creditors and credit insurers who read the register, and a parent balance sheet quietly underwriting subsidiaries it might have preferred to ring-fence. For groups with clean intercompany positions and no ring-fencing intent, it is free money; for anyone using subsidiary structures precisely to contain risk, it is the exemption that defeats the structure.
Exempt is not unaccountable — and audit is not always the thing to shed
Exemption removes the audit, not the accounts: statutory accounts are still prepared and filed, directors still owe their duties, and HMRC still expects tax computations built on reliable numbers. (Fully dormant subsidiaries have their own, more complete exemption.) The genuine decision is whether anyone relies on assured numbers: lenders and invoice financiers frequently require audit by covenant regardless of statute; acquirers and their diligence teams often discount or dig harder into unaudited history, depending on the deal and the buyer; grant funders and some regulators hard-code it; and groups eyeing a sale often keep auditing two or three years ahead of market precisely to avoid the diligence discount. Meanwhile charities run on different, lower thresholds entirely — our not-for-profit guide covers those — and newly-exempt companies often land better with a halfway house — an assurance review, which gives a (limited) conclusion, or agreed-upon procedures, which report factual findings without any conclusion at all. They are different products, and stakeholders should be told which one they are getting.
Making the decision properly
The checklist we run with clients crossing the threshold: confirm eligibility including the group test and ineligible-group screen; canvass the actual users of the accounts (bank, insurers, key customers, future buyers) before assuming nobody cares; for the s479A route, get legal eyes on the guarantee's interaction with covenants and group risk policy; diarise the annual filings — a missed AA06 or consent quietly voids the exemption for the year; and revisit annually, because thresholds, group composition and exit plans all move. The fee saving is real; the decision is about who was relying on the assurance you are about to switch off.
Acumon advises on both sides of the line — statutory audit where it stays, exemption structuring and the s479A paperwork where it goes, and assurance alternatives in between, with statutory accounts continuing either way. If the 2025 thresholds just made your audit optional, the right response is a decision, not a default.