Does your subsidiary need an audit? Key factors you need to know

As a subsidiary, it is crucial that you determine if the company needs an audit to avoid ensure compliance with UK law and avoid incurring penalties. Here’s your quick guide to understanding subsidiary audit requirements, exemptions, and benefits.

When is an audit required for a subsidiary?

All subsidiary companies require an audit unless they are exempt.

How do i know if my subsidiary is exempt?

Your subsidiary may qualify for audit exemption through these routes:

1. Small group exemption (Section 479, Companies Act 2006)

If your group qualifies as a "small" group based on size criteria (turnover, assets, employees), your subsidiary could be exempt. The group criteria are as follows, and relate to the combined total for the group:

• Annual turnover: Must not exceed £12.2 million (or £18 million from April 2025).
• Assets: No more than £6.1 million (or £9 million from April 2025).
• Employees: Less than 50.

To qualify, the group must meet two out of three size thresholds. If the parent company doesn't meet this, it may still qualify via other options like a parent guarantee.

2. Parent guarantee (Section 479A, Companies Act 2006)

If your group doesn't qualify as small, if the parent and subsidiary are both based in the UK, a parent guarantee can allow the subsidiary to be exempt from audit. The parent company must include the subsidiary in its consolidated accounts and submit the following documents to Companies House:

• A written notice that all members of the subsidiary company agree to the exemption
• A statement from the parent undertaking that it guarantees the subsidiary company
• A copy of the parent company’s consolidated accounts

3. Dormant subsidiaries (Section 480, Companies Act 2006)

If your subsidiary is dormant (not trading), it may also qualify for audit exemption, as long as it hasn't engaged in certain regulated activities (such as banking or insurance) during the financial period.

Are there any other reasons why my subsidiary would not be able to claim exemption?

Even if you’re below these thresholds, some subsidiaries must still undergo an audit, such as:

• Public companies
• Companies who are part of a medium or large group
• Financial institutions
• Charities
• Regulated entities

Even if my subsidiary is exempt, what are the benefits of a voluntary audit?

Even if you're not legally required to have an audit, consider going ahead with one. Here's why:

• Boost credibility: Audited accounts show investors, lenders, and partners your financial integrity.
• Improve internal controls: Audits identify weaknesses in your financial systems, helping streamline operations and improve processes
• Gain strategic insights: An audit can help identify opportunities to improve business performance.
• Increase stakeholder confidence: Audited financials reassure your stakeholders about your business’s reliability.

What happens if you don’t comply?

Failing to have an audit when required can lead to serious consequences:

• Legal penalties: You could face fines for non-compliance.
• Damage to reputation: Not having an audit can make investors and partners question your financial integrity.
• Missed opportunities: Without audited accounts, you may struggle to secure funding or prepare for a sale.

Next steps: Does your subsidiary need an audit?

Understanding if your subsidiary qualifies for audit exemption or needs an audit is crucial. Don’t risk non-compliance—consult with an expert to make sure your business is compliant.

Book your free 15-minute consultation

Contact our team today to discuss whether your UK subsidiary needs an audit or qualifies for exemption.