Micro-entities are very small UK companies or LLPs. Your company may be a micro-entity if it meets two of the three following criteria: turnover of £632,000 or less; assets of £316,000 or less; 10 employees or less.

For periods commencing on or after 6 April 2025, the thresholds for micro-entities will increase to: turnover of £1m or less; assets of £500,000 or less; 10 employees or less.

Here, we take a look at the ins and outs of what it means to be a micro-entity.

Some companies and LLPs are not allowed to be micro-entities.

These include:

• Charitable companies;

• Investment undertakings;

• Financial institutions;

• Subsidiaries that are fully consolidated in group accounts; and

• Parent companies that prepare group accounts.

Micro-entities have a separate accounting standard in UK GAAP called FRS 105 ‘The Financial Reporting Standard applicable to the Micro-entities Regime’.

What does this mean for me?

Most smaller companies can prepare accounts with reduced requirements compared to larger companies under Section 1A of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. However, an entity that qualifies as “micro” has a further choice and needs to decide whether it prepares these “small” company accounts or opts instead to prepare “micro” company accounts under FRS 105. This decision needs consideration as there are advantages and disadvantages of each approach.

What are the advantages of micro entity accounts?

Micro-entities can prepare simpler accounts with fewer disclosures than are required for small companies. Only the balance sheet and a few notes are filed at Companies House. HMRC however will still require you to file the profit and loss account with them.

Micro-entities can take advantage of some accounting simplifications such as being able to account for investment properties at cost less impairment, rather than at ‘fair value’ (which is required under FRS 102 for non-micro entities). The ability to recognise assets at cost may be beneficial for property investment companies with relatively low turnover and small staff numbers, as you can avoid having to pay for regular property valuations.

What are the downsides?

Micro-entities have fewer choices in accounting policies than are available to “small” companies. For example they cannot chose to adopt a revaluation accounting policy for fixed assets of the same class. The accounts do not contain very much information, so may not be very useful if you want to provide your accounts to stakeholders. “Small” company accounts are much more informative. Generally, micro accounts are not recommended if you want an audit.

Are there any tax implications?

In some cases, choosing to prepare micro-entity accounts can lead to a change in profit if the accounting policies applied are different from those required under FRS 102. This could lead to a correlating variation in the corporation tax due.

However many micro-entity accounting policy variations will not have tax implications. For example, for investment property companies, gains arising from recognising investment property at fair value (as required by FRS 102, but not allowed under FRS 105) are not taxable until the property is sold, so opting for FRS 105 makes no difference to the tax payable.

We can help you:

• Consider if micro-entity accounts may be more suitable for your company;

• Understand the changes to your results arising from application of FRS 105; and

• Consider any tax impact of the changes.