Small brokers will no longer have to cough up thousands in accounting fees due to a government turnaround on external auditing requirements.

Brokers with an annual turnover of under £5.6m and a balance sheet total of less than £2.8m have historically avoided paying for an external audit under the Company's Act 1985.

But Insurance Times reported last month that thousands of small brokers had lost the exemption after 14 January 2005 because they carried out a regulated activity under Part 4 of the Financial Services and Markets Act 2000.

The DTI has now back-tracked and reinstated the exemption through a statutory instrument introduced on 15 August. The rule comes into force on 5 September.

But in a blow to those who have already paid for their audits, the exemption will not be backdated.

Small brokers who have already stumped up the additional fees will not be able to claim back the extra cost - in some cases treble the cost of last year's accounts.

In a set of explanatory notes the DTI admitted that excluding small insurance brokers from audit exemption was "unintentional".

Allan Gambles, compliance manager at broker Coversure, said: "We applaud the change but just wish the FSA or the DTI had communicated with us earlier. Brokers who got their accounts in promptly may have paid out unnecessarily."