Lawyer
An expert in corporate and international corporate law. He has many years of experience in establishing and reorganizing companies, supporting M&A transactions, as well as providing legal support for opening and running a business in the EU, Asia, and North America.
LEGAL AUDIT OR DUE DILIGENCE OF BUSINESS IN UK
2025 brings a number of significant updates to the UK regulatory environment, requiring companies to pay special attention to compliance issues.
So, let’s take a comprehensive look at the legal audit process and the current requirements and updates for 2025.
Due diligence — is the process of gathering and analyzing information about a business or asset before entering into a deal to assess the risks and benefits.
Importance for business in the UK:
- Risk management. The UK has a complex regulatory system that is constantly evolving. According to the Regulatory Initiatives Grid, the 8th version of which was published in 2024, companies face numerous regulatory changes.
- Reputation protection. Compliance with the law helps avoid fines and reputational damage.
- Investment attractiveness. Conducting regular audits increases investor confidence.
- Corporate responsibility. Especially relevant in light of the 2025 updates related to Corporate Governance and Economic Crime.
Types of legal audit in the UK
- General corporate audit – verification of corporate structure, management, document flow. (Companies Act 2006, UK Corporate Governance Code)
- Financial audit – financial statement audit, compliance with accounting standards. (FRS 102/105, Companies Act 2006)
Pay attention for renewal from 2025, namely from June 1, 2025, new audit requirements for firms registered with ICAEW come into force.
- Tax audit – verification of tax liabilities, assessments and paying taxes. (FA 2025, CTA 2010, VATA 1994.)
- Labor audit – compliance with employment legislation, including updated requirements 2025. (Employment Rights Act 1996, update 2025)
- Audit of compliance with anti-money laundering legislation – checking AML, KYC, suspicious transaction reporting systems. (Money Laundering Regulations 2017)
- GDPR Compliance and Cybersecurity Audit – data protection, cyber resilience, incident response. (Data Protection Act 2018, Digital Operational Resilience Act (DORA))
- Audit of compliance with human rights legislation – assessment of compliance with business and human rights requirements. (Modern Slavery Act 2015)
Legislative framework
The main laws governing auditing in the UK:
- Companies Act 2006: Regulates corporate governance, company reporting
- Audit Regulations 2025: Updated requirements for auditors starting June 1, 2025
- UK Corporate Governance Code: Corporate governance principles
- Money Laundering Regulations 2017 (updated 2025): New requirements for AML procedures
- Economic Crime and Corporate Transparency Act 2023: Introduces a new “offence of failure to prevent fraud”, effective September 1, 2025
- Data Protection Act 2018/GDPR: Regulates data protection
- Digital Operational Resilience Act (DORA): Cyber resilience requirements relevant for 2025
- Bribery Act 2010: Counteraction to hubs.
There are also additional regulations, such as:
- FRS 102/105: Financial reporting standards.
- Employment Rights Act 1996: Labor law.
- Modern Slavery Act 2015: Combating slavery and human trafficking.
- Environmental Act 2021: Environmental requirements.
Audit/due diligence procedure
- Planning and scope of the audit
Goal setting: Depends on the type of audit (e.g. M&A due diligence, regulatory audit).
Amount: It is determined depending on the size of the company, industry, and degree of risk.
Terms: Usually 4-12 weeks, depending on the complexity.
- Collection of documents and information
Corporate documents: Statute, protocols, registers.
Financial documents: Reports, tax returns, bank statements.
Contractual basis: Major contracts, licenses.
Labor documentation: Contracts, internal regulations, injury records.
Data protection documents: Data processing registers, incident reports.
- Interviews with managers and employees
Leaders: Assessment of strategy, risks, internal control.
Finance Department: Accounting processes, auditing.
Legal Department: Contractual framework, court cases.
HR: Labor practices, compliance with legislation.
- Document and process analysis
Compliance with legislation: Verification of compliance with all applicable laws.
Risks: Identification of potential problems (e.g., misclassification of employees).
Internal control: Evaluation of systems that prevent violations.
- Preparation of report and recommendations
Description of the identified problems: Detailed description of each problem.
Risks: Probability and impact assessment.
Recommendations: Suggestions for correction, prevention, optimization.
Main areas of verification
- Corporate structure and management
Compliance with the statute: Verification of compliance of the structure and management with the company’s charter.
Disclosure of information: Compliance with disclosure requirements (e.g. register of people with significant control)
- Financial reporting
International standards:FRS 102/105, IAS.
Accounting policy: Checking accounting policies for compliance with standards.
Audit reports: Evaluation of audit opinions for prior periods
- Contractual basis
Main contracts: Analysis of key contracts (supply, loans, licenses).
Conditions: Checking conditions for risks (e.g. penalties for non-compliance).
- Labor law
Contracts: Check for misclassification (employee vs. contractor).
Working hours: Compliance with requirements regarding working hours and rest.
Salary: Verification of compliance with the minimum wage and wage equality.
Update 2025: New requirements for annual audit of labor law compliance
- Data protection and cybersecurity
GDPR/DPA 2018: Compliance with requirements for the processing of personal data.
Cyber resilience: Assessment of protection systems, incident response plans.
DORA: For financial institutions — requirements for digital operational resilience
- Intellectual property
Rights: Checking ownership of IP rights (patents, trademarks, copyrights).
Licenses: Analysis of license agreements.
- Money laundering and financial crimes
AML procedures: Verification of KYC, monitoring, and reporting systems.
New “offense of failure to prevent fraud”: From September 1, 2025, companies are liable for fraud committed by their employees
- Tax liabilities
Taxes: Corporation tax, VAT, PAYE, NIC.
Tax reports: Checking timeliness and accuracy.
- Environmental and social risks
ESG: Assessment of environmental, social and management factors.
Reporting: ESG reporting requirements relevant for 2025.
In 2025, significant changes are expected and already exist in the UK regulatory environment: from June 1, new audit standards for ICAEW firms will come into effect, from September 1, a new crime of “failure to prevent fraud”, stricter requirements for corporate governance and digital resilience (DORA), a mandatory annual audit of employment law compliance will be introduced, and requirements for ESG reporting will be expanded.
Therefore, for effective legal auditing in 2025, it is recommended to conduct annual audits, starting planning 3-6 months before the end of the financial year, involving qualified auditors with experience in your industry.
Preliminary internal preparation of documents and systematization of processes will allow for more effective use of audit results to adjust business processes.
Follow legislative updates through official sources (HMRC, Companies House) to respond to regulatory changes in a timely manner.
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Is the value of the business to be audited more than 500,000 euros?
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How long does company registration take?
A standard electronic application to Companies House is usually processed within 24 hours. However, preparation of the structure, identity verification, obtaining an address, tax setup and account opening require additional time.
Who needs to complete identity verification?
Directors and persons with significant control — PSCs — must complete verification. Once completed, the individual receives a Companies House personal code used to confirm the relevant corporate role. Non-residents may also complete verification, including by using a biometric passport.
Where is the best place to open an account for a UK company with a non-resident director?
Since traditional UK High-Street Banks require a physical business presence, the fastest and most efficient solution for international companies is to open accounts with electronic money institutions (EMIs). Platforms such as Wise Business, Revolut Business and Payoneer are licensed by the FCA and provide full UK and international account details for transactions.
When must a company register for VAT?
The general threshold is £90,000 of taxable turnover over the previous consecutive 12 months or expected turnover during the next 30 days. Separate rules may apply to non-resident and cross-border models, so VAT should be analysed before sales begin.
Is a company required to file reports if it has not traded?
Yes, it is mandatory. Even companies with no operating activity must annually file so-called “Dormant Accounts” with Companies House and confirm the ownership structure through a Confirmation Statement. Failure to file these documents results in substantial penalties (from £150 to £1,500) and compulsory dissolution of the company, with its assets passing to the Crown.
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