UK accounts and audit for a subsidiary
Every UK company files annual accounts on a public register. Whether it also needs an audit depends on the size of the whole group worldwide, not the size of the UK company, which is the thing that catches almost everybody.
Every UK company files annual accounts on a public register. Whether it also needs an audit depends on the size of the whole group worldwide, not the size of the UK company, which is the thing that catches almost everybody.
The four things to know
- Accounts filed within 9 months of the year end
- First accounts due 21 months after incorporation
- Audit is decided by the size of the WHOLE group
- The parent-guarantee exemption needs a UK parent
Accounts
Every UK company prepares annual accounts and files them at Companies House, where anyone can read them. The deadline is nine months after the accounting reference date, and 21 months after incorporation for the first set. The same accounts, in the digital format HMRC requires, go in with the corporation tax return within twelve months.
Accounts are prepared under a UK accounting standard. Most subsidiaries use FRS 102, the standard for entities that are not listed. A subsidiary of a group reporting under IFRS can use FRS 101, which applies IFRS recognition and measurement with reduced disclosures, so the UK figures agree with the group's without a second set of adjustments at consolidation. Choosing between them at set-up is a five-minute conversation that saves a fortnight at the first year end.
One change worth watching: the rules on what small companies must publish have been tightening, with small companies moving towards filing a profit and loss account rather than an abridged balance sheet, and filing by software rather than on paper. Prepare accounts on the basis of what will be on the public record when they are filed, not what used to be.
Audit: the test that catches foreign-owned subsidiaries
A UK private company is exempt from audit if it is small, meaning two of: turnover no more than £15 million, balance sheet total no more than £7.5 million, and no more than 50 employees, for financial years beginning on or after 6 April 2025.
A company in a group only gets that exemption if the group as a whole is small, tested on the worldwide group headed by the ultimate parent. The group limits are £15 million net or £18 million gross turnover, £7.5 million net or £9 million gross balance sheet total, and 50 employees, again two out of three.
So a UK subsidiary with £400,000 of turnover and three staff needs a statutory audit if its parent group employs 60 people in Chicago or turns over £20 million in Bengaluru. The auditor must be appointed before the year end, so the test is worth running at set-up rather than at the year end. Establish it on day one instead: it is a question about the group's figures, not the UK company's, and it takes ten minutes to answer.
The parent guarantee exemption
UK law lets a subsidiary skip its audit where the parent guarantees all its liabilities for the year and files consolidated audited accounts at Companies House, along with written member consent and a specific form, all before the filing deadline. It is a useful exemption. It is only available where the parent is established under the law of a part of the UK. An overseas parent cannot use it, so for a foreign-owned subsidiary the only question is whether the worldwide group is small.
Who can audit
Only a firm registered as a statutory auditor in the UK. The group auditors can do it if they are UK-registered or have a UK member firm, which is often efficient; otherwise a UK registered firm audits the subsidiary and reports to the group auditors as component auditor. Either way the auditor should be appointed before the year end, not after it.
Buzz Accounting is licensed by the AAT and does not carry out statutory audits. What we do is apply the size test at set-up so you know in year one, prepare the accounts and working papers to the standard a registered auditor expects, introduce a registered firm, and handle the queries during fieldwork. Well-prepared books are the difference between a short audit and an expensive one.
Supporting the group audit
Separately from any UK statutory audit, the parent's auditors will usually ask the UK component for a reporting package, confirmations and explanations on their timetable. We prepare what they specify and align the two exercises so the work is done once rather than twice.
Dormant companies
A company with no significant accounting transactions in the period is dormant and files a short set of dormant accounts. Paying the Companies House filing fee and the money for shares issued at incorporation are ignored; almost everything else, including paying an accountant from the company's own account, ends dormancy. A dormant company has its costs paid by the parent.
Related guides
Getting money out of a UK subsidiary
Dividends leave the UK with no withholding tax at all. Interest and royalties are taxed at 20% at source unless you claim the treaty rate first. Management charges are the flexible one, and the one that needs paperwork.
Do you already have a UK tax presence?
A UK taxable presence can exist, and corporation tax accrue, for two years before anything is registered. A UK taxable presence is created by what people do here, not by what has been registered.
Employer of record or your own UK company
An employer of record puts one person on a UK payroll in days without an entity. It does not give the group a UK company, and it does not settle whether the parent has a UK taxable presence.
Get a fixed quote
Tell us where the parent company is and what the UK operation has to do.
