Audit exemption

Every limited company is required to have their company accounts audited by a Registered Auditor unless they are entitled to audit exemption.

Audit exemption threshold

To file non-audited accounts with Companies House, your company must meet the following criteria.

The thresholdCompany accounts begin 1 Jan 2016Company accounts prior 1 Jan 2016
Sales less than£10.2 million£6.5 million
Business assets worth less than£5.1 million£3.26 million
No. of staff less than5050

Your company must engage a Registered Auditor to audit your company accounts. Especially, if your sales and business assets are worth more than the audit exemption threshold.

This aside, however, your bank or major creditors or investors may require your company accounts to be audited under their terms of lending. In this case, your company must appoint an auditor to fulfil the requirement.

Also, take note that your company shareholders who hold more than ten per cent of your issued share capital could request your company accounts to be audited, in this situation your audit exemption entitlement is waived.

Dormant Company

A dormant company is qualified for audit exemption and is eligible to file a dormant account at the same time you submit your confirmation statement with Companies House.

However, your dormant company must not be part of a group of companies that required audit by law.

Concurrently, company registered as a public limited company (PLC) must file audited account even if your PLC is dormant. If you would like to submit unaudited dormant account then you must first re-register your company from a PLC to a private limited company.

Businesses do not qualify for audit exemption

Limited company with the following principal business activities are not qualify for audit exemption by defaults. In other words, your company must submit audited company accounts with Companies House.

  • A public limited company.
  • A company is parent or a subsidiary a group, with the group turnover exceed the audit threshold.
  • An authorised insurance company or carrying out insurance market activity.
  • A company involved in banking or issuing e-money.
  • A Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company.
  • A corporate body and its shares have been traded on a regulated market in a European state.

Audit on company accounts

Audit on company accounts are compulsory for large and medium size company. However, small company and micro entity may claim audit exemption. In other words, small company and micro entity do not need to audit their accounts.

However, some companies even if they are small companies and micro entities are not allowed to claim audit exemption. They must deliver audited company accounts to Companies House.

These companies are:

  • A public limited company.
  • A company is parent or a subsidiary of a group and the group turnover exceeds the audit threshold.
  • An authorised insurance company or carrying out insurance market activity.
  • A company involved in banking or issuing e-money.
  • A Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company.
  • A corporate body and its shares have been traded on a regulated market in a European state.

Compulsory Audit

Large companyMedium size company
Sales less than> £36 million£36 million
Balance Sheet total> £18 million£18 million
Average no. of staff less than> 250250

Large company must prepare and submit full audited accounts with Companies House.

Similarly, medium size company must have their accounts audited but may opt to prepare accounts giving less information for public record.

Audited accounts comes with an auditor report. Your auditor would express their opinions on your accounts whether it gives true and fair view. It is a good report if you get an unqualified audit report.

Voluntary audit

Micro entitySmall companyAudit exemption
Sales less than£632,000£10.2 million£10.2 million
Balance Sheet total£316,000£5.1 million£5.1 million
Average no. of staff less than105050

Small company and micro-entity company may choose not to audit their company accounts by claiming audit exemption.

Accounting and auditing are two different assignments. To put it simply, accounting is assembling transactions into profit and loss account and balance sheet and other financial statements. Whereas auditing is checking the accounting is accurate. For this reason, you must hire a qualified auditor to do the work. The auditing fee is on top of your accounting fee.

However, they may opt for voluntary audit if an audit would benefit them. For example, a company preparing for admission into stock exchange require minimum of three years audited accounts with unqualified audit report prior to admissions.

Generally, an audit includes verifying information in your accounts on a sample test basis and also your company documents such as the Confirmation Statement filed with Companies House if it is still valid. ‘in addition, the disclosure in the accounts are appropriate.

Where to send your company accounts

Where to send your signed company accounts is dependent on where your company’s registered office is situated. For instance, company with registered office in England and Wales may send their accounts to Companies House London office or Companies House Cardiff office.

As a matter of fact you may file your micro entity account using the webfiling service. In this instance, you would require your authentication code for this purpose. The authentication code is the electronic equivalent of your director’s signature. Therefore always Keep safe of your code.

In situation where you have misplaced your code, you can request it again from Companies House. It takes five working days to arrive at your registered office address. However, if your registered office is no longer valid, change it.

Audit Exemption for subsidiary

In certain circumstances your subsidiary may claim audit exemption if your parent company is established under the law of an European Economic Area (EEA) state.

You must submit the following documents to Companies House to claim the exemption. And the documents must reach Companies House before the date on which your company accounts are due.

  • A written notice that all members of the subsidiary company agree to the exemption in respect of the relevant financial year.
  • The completed Companies House form AA06. This is the statement of guarantee by a parent undertaking of a subsidiary company in respect of the relevant accounting year. The law supports this is the section 479C of the Companies Act 2006.
  • A copy of your parent undertaking’s consolidated accounts. This includes a copy of the auditor’s report and the annual report on those accounts.

Your Parent’s consolidated accounts must consolidate your subsidiary accounts either for the relevant financial year or to an earlier date in the same financial year. Another thing is your parent undertaking must also disclose in the notes to their consolidated accounts that your subsidiary is exempt from auditing their accounts. This includes the law which it relies on which is the section 479A of the Companies Act 2006.

Your parent’s consolidated accounts must also show your subsidiary company’s name and registered number in a prominent place on the document.

Take note that the audit exemption will only be available if your subsidiary company’s financial year ends on or after 1 October 2012.

Company not allowed to claim audit exemption as a subsidiary

In short your subsidiary is not entitled to audit exemption if it was at any time within the relevant financial year, it is a:

  • Quoted company.
  • Company that is an authorised insurance company, a banking company, an e-Money issuer, a MiFID investment firm or a UCITS management company.
  • Company that carries on insurance market activity.
  • Special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c 52) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland Order 1992 (S.I. 1992/807 (NI 5).

The Companies House form AA06

Your statement of guarantee must present the following information.

  • Registered name and number of your subsidiary.
  • Your subsidiary’s financial year to which the guarantee relates.
  • The statement date.

You must also include the details of the section of the Companies Act 2006 under which the guarantee is being given. For examples,

  • Section.394c – exemption from preparing accounts for a dormant subsidiary.
  • Section.448c – exemption from filing accounts for a dormant subsidiary.
  • Section.479C – audit exemption for a subsidiary undertaking.

In addition, you must also provide the name of your parent undertaking such as if the parent was incorporated in the UK, its registered name and registered number. In the case of if the parent was incorporated and registered (in the same country) elsewhere in the EEA, its registered name, registration number and the identity of the register where it is registered.

The Effect of the guarantee and when it takes effect

In effect the parent undertaking guarantees all outstanding liabilities that your subsidiary is subject to at the end of the financial year. The guarantee takes effect when it is delivered to Companies House. It remains in force until all of the liabilities have been satisfied.

Audit exemption compliance

For example, your balance sheet in your individual company account must include an audit exemption statement to the effect that. This is as follows.

  • For the year ending (dd/mm/yyyy) the company was entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies.
  • The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.
  • The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.

Seek accountants help if you are not familiar with the consolidation of group accounts. Companies House may seek clarification on your subsidiary filing.

Company accounts

Send your subsidiary company accounts on time to Companies House. Otherwise, you would receive an automatic late filing penalty even if your accounts just late by one. The penalty starts from £150 to £1500 depending on how late.

However, you can avoid the late filing penalty. Start preparing your accounts soon after the year-end. With this would allow ample time for filing.

Companies House may strike off company with long overdue accounts. They usually send reminders to your registered office. If there is no response from you then they would initiate the proposal to strike off. Write to Companies House if you would still like to keep your company and state your reasons. Companies House will response to your request whether they approve. If they do, you must comply to their specified deadline.

Confirmation statement

Another document you must send to Companies House every year is the confirmation statement. This document would have nothing to do with your company performance or your profit and loss or your balance sheet. It is a statement to confirm that your company information is still valid as at your confirmation statement due date.

Authentication code

You can file your confirmation statement online or on paper. You would require your authentication code to file online. The code is the electronic equivalent of your company director’s or secretary’s signature. Therefore do not share your code with anyone and always keep it safe.

Do not worry if you have misplaced or someone has got hold of your authentication code. If you have misplaced your code request it again from Companies House. It takes 5 working days for the code to arrive at your registered office.

If you cannot get your letter sent to your registered office you must change your registered office. After that request the code again.

Companies House would not send your code to anywhere else. No matter how hard you try to persuade them. They would just say no. They just do what the law says.

On one hand if someone has your code. It is possible to change it. You can do so using the web filing service. You can reset your code there.

It is imperative you file your confirmation statement on time too. This is to avoid Companies House dissolve your company. Once your company has been dissolved, you would have to restore it if you still like to keep it.

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