The Short Answer
Micro-entity accounts are the smallest set of statutory accounts a UK limited company is allowed to prepare and file. They are prepared under FRS 105, they run to about two pages, and the version that goes on the public register is a balance sheet with a handful of notes underneath it.
Your company qualifies as a micro-entity if it meets at least two of these three conditions:
- Turnover of not more than £1 million
- Balance sheet total of not more than £500,000
- Not more than 10 employees on average
Two of three. Not all three. That distinction matters and we come back to it.
Those figures changed for financial years beginning on or after 6 April 2025. The old limits were £632,000 and £316,000. The employee limit did not move.
Before Anything Else: Check The Numbers You Have Been Given
We ran a search for "micro entity accounts" while writing this in September 2026. The AI summary sitting above every organic result gave the thresholds as £632,000 turnover and £316,000 balance sheet total, then cited a source three lines further down that correctly said £1 million. Two of the pages on the first page of results were still on the old numbers as well, including one published by an accountancy body.
This is not a small error. The gap between £632,000 and £1 million is the difference between a business filing full small company accounts it does not need to file, and one filing the minimum. Around 113,000 companies moved from small to micro when the limits changed, and a decent number of them are still preparing accounts on the old basis because that is what their software template, their previous accountant, or the top of Google told them.
If you take one thing from this page, take the current numbers: £1 million, £500,000, 10 employees, for financial years beginning on or after 6 April 2025. Anything quoting £632,000 was written before December 2024 or copied from something that was.
Who Qualifies, Properly
The test lives in section 384A of the Companies Act 2006, and it works the same way as every other UK company size test.
In the first financial year, you qualify if you meet the conditions in that year. No history required.
After that, a change of status only counts if it happens in two consecutive financial years. One heavy year does not push you out of the micro regime, and one quiet year does not pull you back in.
Short periods get pro-rated. A nine month accounting period has a turnover limit of £750,000, not £1 million.
Employees are an average, not a headcount. Take the number of people employed under contracts of service in each month, add the twelve figures, divide by twelve. Part timers count as one whole person, which catches businesses that use a lot of casual staff.
Balance sheet total means the aggregate of the amounts shown as assets. Gross, not net. There is no deduction for what you owe. We wrote about this at length in our guide to audit thresholds because it is the single most common reason a company gets its size category wrong, and it applies identically here. A company with a £480,000 property and a £430,000 mortgage has a balance sheet total of at least £480,000, not £50,000.
Here is the part most guides skip. Because you only need two of the three, failing one test on its own changes nothing.
A consultancy turns over £940,000, holds £180,000 of assets, and employs twelve people. It fails the employee test outright. It still meets turnover and balance sheet total, which is two of three, so it is a micro-entity and can file micro-entity accounts.
Run the same logic forwards. A design agency with £220,000 of assets and six staff grows from £780,000 of turnover to £1.15 million and then to £1.3 million. It has failed the turnover test in two consecutive years, which normally ends the story. It has not. It still meets the balance sheet and employee tests, and two of three is all the law asks for. It stays a micro-entity while it doubles its revenue.
That is a genuinely odd outcome, and it is why the register contains micro-entity filings from businesses that are not, in any ordinary sense, micro.
Who Is Shut Out
Section 384B lists the companies that cannot use the micro-entity regime whatever their size. You are excluded if, at any time in the year, you were:
- Excluded from the small companies regime under section 384 in the first place, which covers public companies, companies with permission under Part 4A of FSMA, e-money issuers, insurance and banking businesses, and any member of an ineligible group
- An investment undertaking or a financial holding undertaking
- A credit institution or an insurance undertaking
- A charity
And separately, under subsection (2), the regime does not apply if the company is a parent preparing group accounts, or if its own accounts are included in consolidated group accounts.
That last one catches more people than the rest combined. A tiny trading subsidiary sitting inside a group that consolidates cannot file micro-entity accounts, however small it is. Groups that set up a separate company for each project, each site or each property routinely get this wrong, because each individual company looks obviously micro when you glance at it. If a parent anywhere above it prepares consolidated accounts that include it, the option is gone.
There is one more restriction inside section 384A itself. A parent company can only be a micro-entity if it qualifies on its own numbers and the group it heads qualifies as a small group. A holding company with £40,000 of assets sitting on top of a £20 million trading business is not a micro-entity.
What Micro-Entity Accounts Actually Contain
FRS 105 is the standard, and the point of it is that there is almost nothing to decide. The formats are fixed and you cannot change the wording of the line items.
The profit and loss account has eight lines:
- Turnover
- Other income
- Cost of raw materials and consumables
- Staff costs
- Depreciation and other amounts written off assets
- Other charges
- Tax
- Profit or loss
Only Format 2 is available, which classifies costs by nature rather than by function. There is no cost of sales line, no gross profit line and no administrative expenses line. If your "other charges" consists entirely of vehicle costs, the line still has to say "other charges". A micro-entity's accounts cannot show you a gross margin, because the format does not contain one.
The balance sheet can use Format 1 or Format 2, and it is similarly compressed. Fixed assets and current assets appear as single totals rather than being broken down into the categories a normal set of accounts would show.
There is no cash flow statement, no directors' report and no accounting policy notes. What you do get is a short list of disclosures shown at the foot of the balance sheet rather than as separate notes: guarantees and other financial commitments, contingent liabilities, charges over assets, off balance sheet arrangements, average employee numbers, and advances, credits and guarantees involving directors.
That last item is worth pausing on. A micro-entity is allowed to hide its turnover, its wage bill, its profit and every accounting policy it applies. The one thing it is not allowed to hide is what the directors have taken out of the company. If you have a director's loan account in overdraft at the year end, it appears at the foot of the smallest, most private set of accounts UK law permits. The single most sensitive number in an owner-managed business is the one number the regime insists on publishing.
Finally, section 393 of the Companies Act says micro-entity accounts prepared in accordance with the micro-entity provisions are presumed to give a true and fair view. That presumption is doing a lot of work. It means you do not have to add disclosures to make eight lines tell the whole story, which is the concession that makes the regime cheap.
The Three Sets Of Numbers Nobody Explains
This trips up almost every first-time director, so it is worth being blunt about it. Preparing micro-entity accounts does not mean you only produce a balance sheet.
Your members get the full accounts, including the profit and loss account.
HMRC gets the full accounts, tagged in iXBRL, attached to the CT600 corporation tax return. The profit and loss account is not optional there and never has been. HMRC needs it to check the corporation tax computation.
Companies House currently gets the balance sheet and the notes underneath it. You may leave the profit and loss account out of the filed copy.
So the privacy micro-entity status buys you is privacy from the public, not from the state and not from your own shareholders. People sometimes choose the regime believing HMRC will see less. It will not.
Abridged Versus Filleted: They Are Not The Same Thing
These two words get used interchangeably, including by accountants, and they mean different things.
Filleted accounts are about what you file. Section 444 of the Companies Act lets a small company or micro-entity deliver a copy of the balance sheet to Companies House without the profit and loss account, and without the directors' report. The full accounts still exist, in full, and go to the members and HMRC. You are simply not putting the trading result on the public register. "Filleted" is not a term the legislation uses; it is what the profession calls it. No member consent is needed.
Abridged accounts are about what you prepare. A small company may prepare a shortened version of the balance sheet and profit and loss account themselves, with several statutory line items combined into single totals. This requires the unanimous consent of all members, given every single year. It is not a permanent election.
Two consequences follow. First, most companies that think they file abridged accounts actually file filleted full accounts, and the annual consent they believe they gave never happened. Second, abridgement is only available to small companies. A micro-entity's formats are already so compressed that there is nothing left to abridge, so a micro-entity files filleted micro-entity accounts and the word "abridged" does not apply to it at all.
Both routes are on the way out. From 1 April 2028, abridged accounts are abolished and every small company and micro-entity has to file a profit and loss account. More on that below.
Micro-Entity Or Small Company? FRS 105 Versus FRS 102 Section 1A
Qualifying as a micro-entity is an option, not an obligation. You can always step up to FRS 102 Section 1A, the small companies regime, and plenty of eligible companies should.
FRS 105 buys you speed and privacy. What it costs you is every accounting treatment that makes a balance sheet look like the business it describes:
- No revaluation of fixed assets. Ever. The micro-entity legislation does not recognise the alternative accounting rules at all.
- No fair value accounting. Investment property is carried at cost less depreciation less impairment, exactly like a factory unit you trade from.
- No deferred tax. Not a policy choice. Micro-entities are prohibited from recognising it.
- No capitalised development costs and no capitalised borrowing costs. Both must be expensed as incurred.
- No equity-settled share-based payment charge recognised in the way FRS 102 would require.
The investment property rule is where this becomes real money. Take a company that bought a commercial unit in 2018 for £240,000, split £60,000 land and £180,000 building, depreciating the building over fifty years at £3,600 a year. Eight years on, the accumulated depreciation is £28,800 and the carrying amount is £211,200. The unit is now worth £360,000.
Under FRS 102 Section 1A, that property could be held at fair value and the balance sheet would show £360,000. Under FRS 105 it shows £211,200, and the filed accounts understate the company's asset base by £148,800. If the company also has a £190,000 mortgage against it, the micro-entity balance sheet reports net assets of around £21,000 on a business that is genuinely worth ten times that.
Now hand those accounts to a lender.
This is the trade nobody explains at the point the decision gets made. It is usually made by default, by whichever framework the accounts production software defaulted to in year one, and then it is repeated for a decade.
Deadlines, Penalties And The Filing Route That Just Disappeared
The deadlines are the same as for any private company. Accounts are due at Companies House nine months after the accounting reference date, or 21 months after incorporation for a first set covering more than twelve months. Corporation tax is payable nine months and one day after the period end, and the CT600 is due twelve months after it. Our UK tax year guide sets out how these dates interact.
Late filing penalties at Companies House are automatic and there is no small company discount:
| How late | Private company or LLP | Public company |
|---|---|---|
| Up to 1 month | £150 | £750 |
| 1 to 3 months | £375 | £1,500 |
| 3 to 6 months | £750 | £3,000 |
| More than 6 months | £1,500 | £7,500 |
File late in two successive financial years and the penalty doubles. A micro-entity that misses two years by seven months each pays £1,500 and then £3,000, on a set of accounts that takes an afternoon to prepare.
There is a change here that has already happened and is still catching people out. The joint HMRC and Companies House filing service, known as CATO, which let a small company submit its accounts to both bodies in one free session, closed on 31 March 2026. Companies House WebFiling still accepts micro-entity accounts free of charge today. HMRC no longer has a free equivalent, so a company filing its own corporation tax return now needs commercial accounts production software that outputs iXBRL, or an accountant.
Directors who filed their own accounts every January for a decade are discovering this in the week the return is due. If that is you, sort the software out now rather than in the last fortnight.
What Changes On 1 April 2028
The Economic Crime and Corporate Transparency Act 2023 changes micro-entity filing considerably. Companies House confirmed the timetable on 9 June 2026 after two earlier slips, and the date is now 1 April 2028.
From then:
- Micro-entities must file a profit and loss account. Filleting the trading result out of the public filing stops being an option.
- Small companies must file a profit and loss account too, and the earlier proposal to make them file a directors' report was dropped. Government has confirmed it intends to remove the directors' report requirement generally.
- Abridged accounts are abolished.
- All accounts must be filed using commercial software in iXBRL format. The Companies House web filing route and paper filing both close for accounts, including dormant accounts.
- Audit exemption statements get tighter. Directors will have to state which exemption they are relying on and confirm the company qualifies.
- Shortening an accounting reference period will be limited to once every five years without a business reason, bringing it into line with the existing rule on lengthening.
There is one significant easement. Small companies and micro-entities will be able to opt out of having the profit and loss account published on the public register. Companies House, HMRC and law enforcement will still see it. Competitors, credit agencies and the general public will not, if you opt out.
Our View
The opt-out quietly undoes the reform. The stated purpose of mandatory profit and loss filing was transparency: making the register a place where you could see whether a company you are about to trade with actually makes money. Then the opt-out arrived, and the answer for anyone who wants to stay private is a tick box. Our expectation is that most owner-managed companies will tick it, because privacy is precisely why they chose the micro regime in the first place. What the reform will deliver is a much better dataset for Companies House, HMRC and law enforcement, which is a legitimate goal and probably the real one. What it will not deliver is a more informative public register. It is worth being clear-eyed about that, because a lot of commentary is telling small companies to brace for exposure that most of them will simply opt out of.
Filing the minimum has a price, and it is charged by your bank. Credit reference agencies build scores from filed accounts. When the filing contains eight balance sheet lines, no turnover, no profit and an asset base held at historic cost, the model has nothing to work with and defaults to caution. We have seen companies with genuinely strong balance sheets get thin credit limits and personal guarantee demands on the strength of a filing that made them look dormant. The accounts you file are, whether you like it or not, a marketing document aimed at anyone who might lend to you, insure you, extend you terms or buy you. Filing the legal minimum is a choice to say nothing, and saying nothing is not neutral.
The fee saving is smaller than people assume. Directors often pick FRS 105 to keep the accountancy bill down. In practice the bill is driven by the state of the bookkeeping, not by which standard sits on the front page. Reconciling a year of bank transactions costs the same either way. The genuine saving between an FRS 105 set and an FRS 102 Section 1A set is usually a couple of hundred pounds. If you are giving up fair value on a property, deferred tax and a legible profit and loss account for that, you have made a bad trade. Choose FRS 105 because the privacy is worth something to you, not because you think it is materially cheaper.
FRS 105 is a tax computation with a cover on it. Strip out deferred tax, revaluation, fair value and capitalised development costs, and what is left is close to a taxable profit figure. That is exactly what the regime is for and it is entirely legitimate. But it means your statutory accounts have stopped being a management tool. If FRS 105 accounts are the only numbers you look at, you are running the business on a document designed to satisfy a filing obligation. Anyone in that position should be looking at management accounts monthly and treating the year-end file as an administrative task, not as information.
Watch the exit, not the entry. Getting into the micro regime is trivial. Leaving it is where the work is, because a company that grows out of FRS 105 has to transition to FRS 102, and the two frameworks are drifting further apart, not closer. The 2026 amendments to FRS 102 brought in a new lease model that does not apply to FRS 105 at all, while the revenue recognition changes do reach micro-entities. A company that stays on FRS 105 through several years of growth accumulates a larger and larger restatement when it finally moves. If you can see £1 million of turnover coming, it is often cheaper to move to Section 1A in a quiet year of your choosing than in the year your bank asks for accounts.
Do not use micro-entity accounts if anyone outside the business needs to read them. That is the whole decision rule. Outside shareholders, a lender, a landlord asking for accounts before granting a lease, a prospective buyer, a large customer running supplier due diligence. If any of those exist, file something legible. If the only readers are you, your co-director and HMRC, file the minimum and spend the difference on numbers you can actually use.
Common Mistakes We See
- Using the old thresholds. £632,000 and £316,000 have been wrong since 6 April 2025 and are still all over the internet.
- Assuming you need all three tests. You need two of three, in both directions.
- Missing the consolidation exclusion. A subsidiary included in group accounts cannot be a micro-entity, no matter how small.
- Saying "abridged" when you mean "filleted". And if you really are abridging, getting the unanimous annual member consent on file.
- Thinking HMRC only sees the balance sheet. It sees everything, every year.
- Carrying an investment property at cost without realising there was a choice. This is the most expensive default in the regime.
- Leaving the director's loan off the foot of the balance sheet. It is one of the few disclosures the regime actually demands.
- Still planning on the free joint filing service. It closed on 31 March 2026.
How IAK Can Help
We prepare and file micro-entity and small company accounts for a lot of owner-managed businesses, and the useful part of the job is not the typing. It is the two decisions that get made once and then live with you for years: which framework you report under, and how much of your trading position ends up on the public register.
We will run the size tests properly, including the gross assets figure and the group position that removes the option entirely. We will tell you honestly whether FRS 105 or FRS 102 Section 1A fits, based on who reads your accounts rather than on which is quickest for us to produce. Where you hold property or intangibles, we will show you both versions of the balance sheet before you commit, because that comparison is usually the whole decision.
Our accounting team handles the statutory accounts and the Companies House filing, our bookkeeping and Xero teams keep the records in a state where the year end is a formality, and our tax planning team makes sure the corporation tax position and any dividend or director's remuneration strategy line up with what the accounts say. We do a lot of this work with small businesses, affiliate and content websites and property developers, where the micro thresholds and the investment property rules collide most often.
If you have been filing micro-entity accounts on autopilot, or you have just been told your company qualifies and you are not sure whether that is good news, get in touch for a free consultation. It is a short conversation and three numbers.
Sources
- Companies Act 2006, section 384A, legislation.gov.uk, on the micro-entity qualifying conditions of £1 million turnover, £500,000 balance sheet total and 10 employees, the first year rule, the two consecutive years rule, pro-rating for short periods, the average employee calculation and the parent company condition.
- Companies Act 2006, section 384B, legislation.gov.uk, on the companies excluded from the micro-entity provisions, including charities, investment undertakings, credit and insurance undertakings, and companies included in consolidated group accounts.
- Micro-entities, small and dormant companies, GOV.UK, on the current thresholds, what may be sent to Companies House and the requirement to send statutory accounts to members and HMRC.
- File micro-entity accounts with Companies House, on the web filing route currently available and the authentication code process.
- Late filing penalties, Companies House, on the penalty amounts for private and public companies and the doubling of penalties for two successive late years.
- Micro-entity accounts: your questions answered, Inform Direct, on the content of micro-entity accounts, the disclosures at the foot of the balance sheet and the directors' report exemption.
- FRS 105: assessing the suitability, AAT, on the prohibition of fair value and revaluation, the absence of deferred tax, the fixed Format 2 profit and loss account and the reasons an eligible company might choose FRS 102 Section 1A instead. Note that this article quotes the pre-2025 thresholds.
- Small and micro-entity filing requirements, ACCA, on the unanimous shareholder consent required for abridged accounts and the April 2028 filing changes.
- Companies House accounts reforms: date confirmed, RSM UK, on the 9 June 2026 announcement, the 1 April 2028 implementation date, the profit and loss opt-out from public disclosure and the removal of the directors' report filing proposal.
- The latest ECCTA accounts reform, Saffery, on the removal of abridged accounts, software only filing in iXBRL and the restriction on shortening accounting reference periods.
- Joint HMRC and Companies House filing service to close, ICAS, on the closure of the joint filing service on 31 March 2026 and the need to file separately with each body from 1 April 2026.