The audit exemption threshold for turnover has not risen in line with inflation during the past six years, leaving almost 8,000 UK companies with unnecessary compliance costs estimated at more than £120 million.

The current audit exemption threshold for turnover is £10.2 million, as of 1 January 2016. According to the latest Retail Price Index (RPI), published monthly by the Office for National Statistics (ONS), this would be £14m today.

Companies House lists a total of 7,975 registered companies in the UK with a turnover between £10m-£14m that would be exempt from audit costs if the threshold had kept up with the RPI.

London has 2,151 companies with a turnover between £10m-£14m, followed by the South East (1,044) and North West (810) as the most impacted UK regions. Northern Ireland (193) has the fewest number.

This comes as thousands of UK businesses brace for recession amid soaring inflation, rising interest rates, and crippling energy bills.

Donald Boyd, Partner at Azets UK, said: “By freezing the audit exemption threshold for turnover, even more pressure is being heaped on UK businesses, many of which are fighting just to keep the lights on. 

“My conservative estimate is that an additional £120 million of extra audit fees would not have been required if the audit exemption threshold had risen in line with inflation.

“It is our job to support and champion British businesses, particularly through periods of economic crisis. We do not want to take unnecessary audit fees.”

Meanwhile, the UK audit industry is under fire due to a talent shortage and persistent audit failures among larger accounting firms, compounded by this unnecessary number of companies that require an audit.

Donald Boyd added: “This is not just about businesses paying unnecessarily. Audit firms can ill afford to welcome unwarranted pressure at a time of significant challenges in the industry.

“8,000 companies have required an audit purely due to the freezing of the audit turnover threshold. Put another way, that’s 48,000 annual audits over six years that otherwise would not have been required, relieving some of the burden on overloaded audit firms.”