It’s easy to be confused by audit thresholds, especially when considering subsidiaries vs. individual companies. It’s important to understand if and when your subsidiary needs an audit, as the legal penalties can be severe if you get it wrong and don’t submit an audit where required. 

As specialist audit accountants, Williamson & Croft have performed audits for clients of all sizes, including subsidiaries. We’ll break down for you exactly when your subsidiary is liable for an audit.  

When are subsidiaries exempt from having an audit?

Let’s take a look at the criteria for when a subsidiary might be exempt from having an audit.

Individual company size vs. group size

Companies in the UK can be exempt from audit requirements when they qualify as being ‘small’. However, if that company is part of a larger group then it can only claim immunity from being audited as a ‘small business’ if the entire group qualifies as small. 

Criteria for being a small group 

These are the requirements for a group to qualify as being ‘small’. The group must meet 2 out of 3:

These criteria for the entire group audit exemption are: 

Turnover – Turnover of less than £10.2 million net, or £12.2 million gross

Total assets – Total assets of less than £5.1 million net, or £6.1 million gross

Number of employees – Employing not more than 50 employees

When is a subsidiary automatically excluded from audit exemptions?

Some companies operate in sectors which mean they must be audited. Even if they meet all of the above criteria for audit exemption for being ‘small’, they are still not eligible for exemption. 

Although it is by no means definitive, here is a list of some of the key sectors:

  • Banking, including e-monies 
  • A publicly traded and listed company, unless it is currently dormant
  • An authorised insurance company
  • A company engaged in regulated insurance market activities
  • Companies operating in the banking sector
  • Electronic money (e-money) issuers
  • Investment firms covered under the Markets in Financial Instruments Directive (MiFID)
  • Management companies for Undertakings for Collective Investment in Transferable Securities (UCITS) funds
  • Any corporate entity that has shares traded on a regulated stock market exchange
  • Financial backers/sponsors of master trust pension schemes
  • Bodies listed on specialised regulatory registers
  • Organisations involved in pension scheme

If any member of the group is ineligible due to operating in these sectors or not being ‘small’, then the entire group is ineligible. 

Other Exemptions

There are some other means of gaining audit exemption for subsidiaries. These are as follows.

Parent guarantee

UK subsidiaries can also avoid an audit if the UK parent company provides a legally binding guarantee covering the subsidiary’s liabilities, as per Section 479A of the Companies Act.

If, however, the UK subsidiaries have a parent company in another European Economic Area country, this complicates the matter. After Brexit the exemption through parental guarantee has changed and we would recommend professional advice before proceeding.

Dormant companies

Even if size criteria is exceeded, dormant subsidiaries with no accounting transactions may qualify to be exempt from being audited under Section 480 of the Companies Act

Unsure if your UK subsidiary qualifies for auditing? Find out before you face consequences

It’s important to seek professional advice from a qualified accountant if you’re in any way unsure whether your UK subsidiary needs an audit. The buck ultimately stops with company officers and you could face legal and financial penalties if your company does not receive auditing if it requires it.

The expert team of accountants at Williamson & Croft provide comprehensive audits for clients including those whose companies are part of subsidiaries. We’ll be happy to help clarify your liability.

If you’re searching for accountancy services to help you understand whether you need an audit, simply contact our team of expert audit accountants at Williamson & Croft today.