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Does the corporate member of my FCA-regulated LLP need an audit?

Certain companies in groups with FCA regulated entities are not eligible for the small companies audit exemption in the UK. This may include the corporate member of an FCA regulated LLP – so what are the rules?

Last updated: 25 November 2020

Can the corporate member claim the small companies audit exemption?

The most common audit exemption is the small companies audit exemption (s477 exemption). This is available if the company is in a 'small' group, or is 'small' and isn't in a group. Certain groups are 'ineligible' to be small, including any group containing a MiFID investment firm or an e-money issuer.

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Katherine White

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Last updated: 25 November 2020

Can the corporate member claim the small companies audit exemption?

The most common audit exemption is the small companies audit exemption (s477 exemption). This is available if the company is in a 'small' group, or is 'small' and isn't in a group. Certain groups are 'ineligible' to be small, including any group containing a MiFID investment firm or an e-money issuer.

Is the corporate member in a group?

Is the corporate member in a group?

A company is in a group if it is a parent or a subsidiary (or both).

A company is a subsidiary if it is more than 50% owned by a corporate entity such as a Limited Company or Limited Liability Partnership (i.e. not an individual). Similarly, it is a parent if it owns more than 50% of a corporate entity.

If the corporate member isn't in a group:

If the corporate member isn't in a group:

If the LLP’s corporate member is not part of a group, then the company may be eligible for audit exemption if it is 'small' (see 'net' limits below) (s477 exemption) or dormant (s480 exemption).

If the corporate member is in a group:

If the corporate member is in a group:

If the corporate member is in a group, that group is ineligible to be 'small' if any entity in the group is:

  • a MiFID investment firm (including BIPRU and IFPRU firms, and some Exempt-CAD firms);
  • a UCITS management company;
  • authorised under the Banking Consolidation Directive or the Insurance Directives;
  • an e-money issuer; or
  • listed in an EEA state such as listed on the London Stock Exchange.

UK companies that are members of 'ineligible groups' are not able to take advantage of the 'small' company audit exemption.

What qualifies as a small group?

If the corporate member is in a group, but it is not an ineligible group:

Companies that are members of small groups may be eligible for the small companies audit exemption.

To qualify as a small group, the whole worldwide group must meet two out of the three following criteria for two years in a row:

Turnover/revenue <£10.2 million (net) <£12.2 million (gross)
Total assets <£5.1 million (net) <£6.1 million (gross)
Average number of employees Not more than 50 Not more than 50

In the first year that two of the three size criteria are exceeded, the group will remain 'small'. If in the following year the size criteria is exceeded again, the group will no longer be classified as small. If there is no previous year (e.g. the parent of the group is newly incorporated), the group will be small provided it meets the size criteria in the current year. 

Are there any other exemptions?

Are there any other exemptions?

If your corporate member is a subsidiary of an EU parent company (or UK parent company for periods commencing on or after 1 January 2021) and that parent company prepares consolidated audited accounts that include the corporate member company, then there is an exemption available if the parent guarantees the liabilities of the UK subsidiary company (s479A exemption). There is no concept of an ‘ineligible group’ and no limit on the size of a company for the purposes of this exemption.

Dormant companies are also exempt from audit (s480 exemption). If the corporate member has any transactions at all such as investing in the LLP or a profit share from the LLP, then the company is not dormant.

Illustration one

Illustration one:

In this case, the same individual (a 'natural person' and not a company) has more than 50% control of the corporate member and more than 50% control of the LLP (so the corporate member of the LLP has less than 50% control of the LLP), so the corporate member isn't in a group with the LLP:

alt

If the corporate member is small (see above), then it can take advantage the small companies audit exemption.

Illustration two

Illustration two: 

In this case, the same parent entity has more than 50% control of the corporate member and the LLP, so the corporate member is in a group with the LLP and the parent company:

alt

If the UK FCA regulated LLP is a MiFID investment firm, the corporate member is a member of an ineligible group and cannot take advantage the small companies audit exemption (but may be eligible for the s479A subsidiary company exemption mentioned above).

Illustration three

Illustration three:

In this case, there is a parent entity that has more than 50% control of the corporate member but not the LLP, so the corporate member is in a group with the parent, but is not in a group with the regulated LLP:

alt

If the parent and the corporate member together form a small group (see above), and neither entity within the group is one of the types of entity that would make the group 'ineligible', then the corporate member can take advantage of the small companies audit exemption.

If the group is not small, the corporate member may still be eligible for the s479A subsidiary company exemption mentioned above.

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