What is an audit, and does my company need one?

What an audit is

Companies House describes an auditor as a person who reports to a company's members on whether the company has prepared its financial statements in line with company law and the reporting rules that apply. The report must also say whether the accounts give a true and fair view of the company's affairs at the end of the year.⁵ The Companies Act sets out what the report must include, such as which accounts were audited, the period they cover and the auditing standards used.³

An audit is not the same as having your accounts prepared. The directors are responsible for preparing the company's annual accounts, and GOV.UK says they stay legally responsible even if they hire an accountant to help.⁶ An audit is a separate check of those accounts once they are prepared. GOV.UK says the accounts might have to include an auditor's report, depending on the size of the company.²

The small company audit exemption

GOV.UK's guide Audit exemption for private limited companies (read 22 October 2026) says a private limited company may qualify for an audit exemption if it meets at least 2 of the 3 tests below. Which limits apply depends on when the company's financial year began.¹

The company needs to meet any 2 of the 3, not all of them. For example, a company with £18 million of turnover could still qualify on the size test if its assets and its staff numbers are both under the limits.

Companies House says that to qualify for audit exemption, a company must qualify as small during the financial year, and that a company which qualifies as a micro-entity also qualifies as small.⁵ Generally, a company qualifies as small in its first financial year if it meets the conditions in that year. In later years it must meet them in that year and the year before.⁵ If your figures have changed from one year to the next, ask your accountant how this applies to you.

Dormant companies

GOV.UK's guide to micro-entities, small and dormant companies (read 22 October 2026) says a company is dormant if it has had no "significant" transactions in the financial year, and that dormant companies that qualify as small do not need to be audited. Filing fees paid to Companies House, late filing penalties and money paid for shares when the company was set up do not count as significant transactions.²

Companies House says a dormant company is exempt from audit for a financial year if it has been dormant since it was formed. It is also exempt if it has been dormant since the end of the previous financial year and meets conditions that include qualifying as small.⁵ The rule is in section 480 of the Companies Act 2006.⁷

When a company needs an audit anyway

A company can still need an audit when it passes the size test. GOV.UK says you will need an audit if:¹

• Your articles of association say you must. Check your company's articles, the rules it was set up with.
• Shareholders ask for one. Shareholders who own at least 10% of the shares, by number or value, can ask for an audit. It can be one shareholder or a group. They must ask in writing, send it to the registered office, and it must arrive at least one month before the end of the financial year the audit is for. Companies House adds that the request cannot be made before the start of that financial year.⁵

Some companies must have an audit whatever their size if, at any time in the financial year, they were one of these:¹

• a public company, unless it is dormant
• a subsidiary company, unless it qualifies for an exemption
• an authorised insurance company, or carrying out insurance market activity
• involved in banking
• an issuer of electronic money
• a MiFID investment firm or a UCITS management company
• a corporate body whose shares have been traded on a regulated market
• a funder of a master trust pension scheme
• a special register body, or a pensions or labour relations body

GOV.UK says to ask a legal professional if you are not sure whether you must have an audit.¹

If your company uses the exemption

The accounts must say so. GOV.UK gives a statement that goes on the balance sheet. It says the company was entitled to exemption from audit under section 477 of the Companies Act 2006, that the shareholders have not asked for an audit, and that the directors acknowledge their responsibilities for the accounting records and the accounts.¹

A change from 1 April 2028. Companies House's guide Life of a company: Part 1 accounts (read 22 October 2026) says that from 1 April 2028, a company claiming an audit exemption will need to give an enhanced statement from the directors on the balance sheet, stating the exemption it is claiming and confirming that the company qualifies.⁵

Who can carry out an audit

Only a statutory auditor can. Under the Companies Act 2006, an individual or firm can be appointed as a statutory auditor only if they are a member of a recognised supervisory body and are eligible under that body's rules.⁴

This part is our judgement, not a rule: not every accountant is a registered auditor, so if your company needs an audit, ask a firm whether it is registered for audit work before you agree anything. See What does an accountant do?

What an audit costs

We have not found a GOV.UK or Companies House source that gives audit fees, so we do not give a figure here. If your company needs an audit, ask for a written quote that says what the fee covers and whether preparing the accounts is included or charged separately.

Questions to ask your accountant

1. Which of the size tests does the company meet for this financial year?
2. Do our articles of association say anything about an audit?
3. If the business keeps growing, which year would be the first one that needs an audit?
4. Are you, or is your firm, registered to carry out audits?