The audit thresholds rose by roughly 50% — the first increase since 2016 — and they first bite for financial years beginning on or after 6 April 2025. In practice, that means year ends falling in 2026.
A great many companies are now exempt who were not before. But “exempt” and “should stop” are not the same sentence, and three things need checking before you cancel anything.
What are the new thresholds?
For financial years beginning on or after 6 April 2025, a company qualifies as small — and is generally exempt from statutory audit — if it meets at least two of three:
- Turnover: £15 million or less (previously £10.2m)
- Balance sheet total: £7.5 million or less (previously £5.1m)
- 50 or fewer employees (unchanged)
Groups have their own, higher limits.
Earlier financial periods still use the old thresholds — so the year you are looking at matters as much as the numbers.
Three things to check before you drop the audit
1. Are you genuinely exempt?
Some companies must be audited regardless of size: public limited companies; regulated entities such as FCA-authorised firms; companies in a group that exceeds the group thresholds; and any company where shareholders holding 10% or more request an audit — which they can do, and sometimes do.
The two-year rule normally applies (you generally need to qualify as small for two consecutive years), though a transitional provision allows the new limits to be treated as though they applied in the prior year. Group aggregation catches many people: a small subsidiary of a larger group is not automatically exempt.
An incorrectly claimed exemption is a compliance failure, and it is awkward and expensive to unwind.
2. What do your stakeholders require?
Check before you cancel, not after. Loan covenants frequently require audited accounts. So do some grant conditions, some articles of association, and some major customers. Ask your bank; it takes one email.
3. What replaces the scrutiny?
This is the one nobody thinks about. For many companies, the audit was the only time anyone independent examined the numbers and the controls. Remove it and put nothing in its place, and you have not just saved a fee — you have removed the thing that would have caught the error, or the fraud.
The FRS 102 trap that could put you back in
Here is a wrinkle that is catching companies out.
Revised FRS 102 requirements on lease accounting apply to periods beginning on or after 1 January 2026. Many leases that previously sat off balance sheet now come on to it.
That increases your balance sheet total — which is one of the three size tests.
So a company comfortably below the £7.5m balance sheet threshold today could find itself above it once its leases are recognised, potentially failing two of three tests and falling back into mandatory audit — despite nothing about the underlying business having changed.
If you are anywhere near a threshold, model this now.
What should you do instead?
Assurance is not a binary choice between a full statutory audit and nothing at all. Between those poles sit engagements that give a bank, a board or an investor the comfort they actually need at a cost that matches the risk:
Assurance reviews — a lighter-touch examination giving negative assurance, at a fraction of an audit fee.
Agreed-upon procedures — you specify precisely what you want checked (a covenant calculation, a grant claim, a specific balance), and pay only for that.
Internal controls reviews — which address the thing the audit was quietly doing for you: providing an external check on your processes.
Most companies leaving audit should be doing one of these. Very few should be doing nothing.
Frequently asked questions
What are the audit exemption thresholds for 2026?
For financial years beginning on or after 6 April 2025, a company is generally exempt if it meets at least two of: turnover £15 million or less, balance sheet total £7.5 million or less, and 50 or fewer employees. These first bite for year ends falling in 2026. Earlier periods use the old limits of £10.2m and £5.1m.
We’re below the threshold — can we stop the audit immediately?
Not necessarily. The two-year rule normally applies, group aggregation may still catch you, and PLCs and regulated entities must be audited regardless of size. Shareholders holding 10% or more can also demand an audit. Check your articles and your loan covenants before cancelling — an incorrectly claimed exemption is a compliance failure.
Could the FRS 102 lease changes push us back into audit?
Yes, and it is catching companies out. Bringing leases onto the balance sheet increases your balance sheet total, which is one of the three size tests. A company comfortably below £7.5m today could exceed it once leases are recognised, and fall back into mandatory audit — with no change to the underlying business.
Does LMJ Group carry out audits?
No. LMJ Group is not a registered auditor and does not carry out statutory, voluntary or charity audits. We advise on whether you need one, prepare you thoroughly if you do, and can refer you to a registered auditor — while continuing to handle your accounts, tax and advisory work. Where an audit is not required, we provide independent examination, assurance reviews and controls reviews.