The New Audit Threshold: What Companies Losing Mandatory Audit Must Do Now
SI 2024/1298 raised the UK audit threshold by approximately 50%. Around 14,000 companies will lose mandatory audit. The legal duty to maintain adequate accounting records under Companies Act 2006 section 386 remains unchanged — the penalty is up to two years' imprisonment.
What changed?
The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1298) increased the size thresholds for small and medium-sized companies for financial years beginning on or after 6 April 2025. Turnover: from £10.2 million to £15 million. Balance sheet: from £5.1 million to £7.5 million. The employee threshold remains at 50. A company meeting two of the three small company criteria for two consecutive years qualifies for audit exemption under section 477 of the Companies Act 2006.
What did NOT change?
Section 386 of the Companies Act 2006 still requires every company to maintain adequate accounting records — records sufficient to show and explain the company's transactions, to disclose with reasonable accuracy the financial position at any time, and to enable the directors to ensure that any accounts prepared comply with the Act. Section 387 provides that an officer who fails to comply commits an offence punishable by up to two years' imprisonment, a fine, or both. Dropping the audit does not reduce this obligation. It removes the one external mechanism that previously enforced it.
What should you replace?
Your auditor provided several functions that most companies do not replicate internally: variance analysis between budget and actual figures, bank reconciliation verification, cash flow review, tax computation cross-checking, and KPI monitoring. Without an auditor, these functions either happen internally or they do not happen at all. The companies that manage the transition well are those that implement continuous financial monitoring — budget vs actual variance with automated alerts, monthly bank reconciliation, rolling cash flow forecasting, and real-time tax computation — before the auditor leaves, not after the first crisis.
The practical next step
Review your current financial controls against a simple checklist. Can your board produce a KPI dashboard within 24 hours if a lender, investor, or HMRC asks? Do you know your corporation tax liability right now, within £5,000? When was your last bank reconciliation? If the answer to any of these is uncomfortable, you have an oversight gap that needs addressing — whether through internal controls, a financial intelligence tool, or a managed service.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.