What’s Changing in 2025?
As of 6 April 2025, the UK government has implemented significant changes to audit exemption rules, aiming to reduce regulatory burdens for companies, particularly subsidiaries. These updates are especially pertinent for businesses operating in London or managing multiple entities within a group structure.
The government has revised the thresholds that determine whether a company qualifies as “small,” thereby expanding the pool of subsidiaries eligible for audit exemptions. This move is part of a broader initiative to foster economic growth by easing compliance requirements for smaller entities.
Who Qualifies for Audit Exemption in the UK?
A subsidiary company, defined as an entity controlled by a parent company, can qualify for audit exemption if:
- It is part of a group that meets the definition of a “small group.”
- The parent company provides a formal guarantee for the subsidiary’s liabilities.
These provisions are outlined in Sections 479A to 479C of the Companies Act 2006. Both active and dormant subsidiaries may qualify under the appropriate conditions.
The New Size Thresholds Explained (Effective from April 2025)
For financial years beginning on or after 6 April 2025, a company or group can be classified as “small” if it meets at least two of the following criteria:
- Annual turnover not more than £15 million.
- Balance sheet total not more than £7.5 million.
- 50 or fewer employees on average.
These updated thresholds replace the previous limits of £10.2 million for turnover and £5.1 million for balance sheet total.
Parent Company Guarantee – What it is & Why it Matters?
A parent company guarantee is a legal commitment by the parent company to cover all liabilities of its subsidiary. This guarantee enables the subsidiary to be exempt from audit requirements, provided other criteria are met.
To submit the guarantee:
- File a statement at Companies House before the subsidiary’s accounts are due.
Without this guarantee, subsidiaries cannot claim audit exemption, even if they meet the size criteria.
Dormant Subsidiaries – The Big Relief in 2025
A dormant company is one that has had no significant accounting transactions during the financial year. Under the new regulations, dormant subsidiaries may be exempt from preparing or filing accounts if
- They are dormant throughout the financial year.
- The parent company is established under UK law and provides a guarantee for the subsidiary’s liabilities.
This change is expected to benefit over 67,000 subsidiaries, significantly reducing administrative burdens for larger groups.
Key Considerations for Group Companies Operating in London
London-based holding companies and SMEs should assess their group structures in light of these changes. Considerations include:
- Evaluating whether the group meets the updated “small” thresholds.
- Determining the parent company’s jurisdiction, as UK-based parents can provide the necessary guarantees.
- Ensuring the timely submission of parent company guarantees to benefit from audit exemptions.
How do We Help? Audit Support for Subsidiaries
At Harvey Craig, we understand the complexities that arise when managing subsidiary audits, especially within multi-entity group structures. Our expert team is well-versed in UK audit regulations and provides tailored support to ensure your subsidiaries remain compliant and efficient.
Here’s how we assist:
Group Structure Review
We assess your group structure to determine eligibility for audit exemption under UK law, ensuring you’re making the most of all available options.Parent Company Guarantee Preparation
Where exemptions are available, we assist in preparing and submitting the necessary parent company guarantees on time and in full compliance with Companies House requirements.Full Audit Support
For subsidiaries not eligible for exemption, we manage the complete audit process from preparing statutory accounts to liaising with auditors to ensure a smooth, timely, and accurate outcome.
With extensive experience serving London-based clients, our proactive and detail-oriented approach helps businesses stay ahead of statutory obligations while minimising administrative burdens. Whether your group is expanding or restructuring, our team ensures you’re fully supported every step of the way.
Learn more about our Audit Services and how we ensure full compliance across your organisation.