What Is a Micro Entity? UK Accounts Requirements Explained

Most UK limited companies qualify as micro entities. According to Companies House data, around 85% of active companies on the register fall below the micro entity thresholds. Yet many directors either do not know they qualify or do not understand what filing as a micro entity actually means in practice.

This guide covers the micro entity definition, the exact thresholds, what goes into micro entity accounts, how they compare to small company and full accounts, when you should deliberately choose not to file as a micro entity, and every practical detail you need to get your filing right.

What Is a Micro Entity Under UK Law?

A micro entity is the smallest category of company recognised by UK company law. The classification was introduced by the Companies Act 2006 (as amended by SI 2013/3008, the Small Companies (Micro-Entities' Accounts) Regulations 2013), which came into effect for financial years ending on or after 1 October 2013.

The legislation implemented the EU Accounting Directive's micro entity provisions into UK law. Despite Brexit, the thresholds and rules remain part of domestic legislation and continue to apply unchanged.

A company qualifies as a micro entity if it meets at least two of the following three conditions in a financial year:

Balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet before deducting any liabilities. It is not net assets. A company with £500,000 of assets and £450,000 of liabilities has a balance sheet total of £500,000, not £50,000.

Average number of employees is calculated by finding the number of persons employed under contracts of service by the company in each month of the financial year (whether full-time or part-time) and dividing the total by the number of months.

Turnover is the amounts derived from the provision of goods and services, after deduction of trade discounts, VAT, and any other taxes based on the amounts so derived. It does not include other income such as interest or investment returns.

Which Companies Cannot Be Micro Entities?

Even if a company meets the size thresholds, certain types of company are excluded from the micro entity regime:

• Public companies (PLCs)
• Companies that are part of a group that does not qualify as small
• Charities
• Companies that are authorised insurance companies, banking companies, e-money issuers, MiFID investment firms, or UCITS management companies
• Companies that carry on insurance market activity
• Companies that voluntarily prepare group accounts

If your company is a straightforward private limited company not involved in regulated financial services, and it is not part of a group that exceeds the small company thresholds, it will qualify as a micro entity provided it meets the size criteria.

How Do Micro Entity Thresholds Compare to Small, Medium, and Large Companies?

UK company law defines four size categories. Each determines the level of accounting and reporting required. The thresholds are:

A company must meet at least two of the three criteria to qualify for a given size category. You qualify for the smallest category whose thresholds you satisfy.

Every micro entity is also a small company by definition. But the micro entity regime offers additional simplifications beyond what is available to small companies that choose not to use it.

What Must Micro Entity Accounts Contain?

Micro entity accounts filed at Companies House are remarkably stripped back. Here is exactly what is included and what is left out:

What Is Included

1. A balance sheet showing fixed assets, current assets, creditors due within one year, creditors due after one year, and capital and reserves. The format is prescribed and simplified compared to full accounts.

2. Notes to the accounts covering only:

   • The accounting policies used (primarily that accounts are prepared under FRS 105)
   • Guarantees, financial commitments, and contingent liabilities (only if they exist)
   • Advances and credits to directors (only if they exist)
   • The average number of employees (optional, since micro entities have 10 or fewer)

3. A statement on the balance sheet confirming the accounts are prepared in accordance with the micro entity provisions and that the directors are entitled to deliver micro entity accounts.

What Is Excluded

• Profit and loss account: Not filed at Companies House. You still need to prepare one for HMRC and for your own records, but the public cannot see it.
• Directors' report: Not required at all for micro entities. You do not need to prepare one.
• Strategic report: Not required.
• Cash flow statement: Not required.
• Detailed notes: Most note disclosures required under FRS 102 do not apply.
• Directors' remuneration disclosure: Not required in the filed accounts.
• Related party transactions: Not required to be disclosed.
• Post balance sheet events: Not required to be disclosed.

Comparison: What Gets Filed by Company Size

The practical effect is that anyone searching your company on Companies House will see a balance sheet and almost nothing else. They will not know your turnover, your profit, your directors' pay, or your detailed cost breakdown.

What Is FRS 105? The Micro Entity Accounting Standard

FRS 105 (The Financial Reporting Standard applicable to the Micro-entities Regime) is the accounting standard that micro entities must use when preparing their accounts under the micro entity provisions. It is issued by the Financial Reporting Council (FRC) and is the simplest UK accounting standard.

FRS 105 is based on FRS 102 (the standard for small and medium companies) but with significant simplifications:

Key Features of FRS 105

No revaluation of assets. Under FRS 105, all assets must be measured at cost less depreciation and impairment. You cannot revalue property, plant, equipment, or investment property to fair value. If you own a commercial property that has doubled in value, your balance sheet will show it at its original purchase price less accumulated depreciation.

No fair value accounting. Financial instruments, investment property, and biological assets must all be measured at cost (or amortised cost for financial instruments). There is no option to use fair value through profit or loss.

No deferred tax. Micro entities do not recognise deferred tax assets or liabilities. Only current tax payable to HMRC is recognised.

No development cost capitalisation. All research and development expenditure must be written off to the profit and loss account as incurred. You cannot capitalise development costs as an intangible asset, even if they meet the recognition criteria under FRS 102.

Simplified financial instruments. All financial instruments are measured at cost or amortised cost. Complex instruments like derivatives must still be recognised, but the measurement is simplified.

No equity method. Investments in associates and joint ventures are measured at cost less impairment, not using the equity method.

FRS 105 vs FRS 102 Section 1A: Key Differences

One crucial difference: under FRS 105, there is no "true and fair override." Under FRS 102, if following a specific accounting rule would give a misleading picture, directors can override it in the interests of showing a true and fair view (with disclosure). Under FRS 105, this mechanism does not exist. The prescribed rules must be followed exactly.

Can You Choose Not to Use FRS 105?

Yes. A company that qualifies as a micro entity is not forced to use FRS 105. It can voluntarily choose to prepare accounts under FRS 102 Section 1A (the small company regime) or even full FRS 102. This is a one-way flexibility: you can always choose a more detailed standard, but you cannot choose a simpler one than you qualify for.

There are legitimate reasons to prepare accounts under FRS 102 even if you qualify as a micro entity, which are covered later in this guide.

How to File Micro Entity Accounts With Companies House

Step 1: Prepare the Accounts

Prepare a balance sheet and minimal notes in accordance with FRS 105. The balance sheet must follow the prescribed format, which includes:

• Fixed assets (subdivided into intangible, tangible, and investments if applicable)
• Current assets (subdivided into stocks, debtors, cash at bank and in hand)
• Creditors: amounts falling due within one year
• Net current assets (or liabilities)
• Total assets less current liabilities
• Creditors: amounts falling due after more than one year
• Capital and reserves (called up share capital, profit and loss account reserves)

The balance sheet must show corresponding figures for the previous financial year.

Step 2: Directors Must Approve

The accounts must be approved by the board of directors and signed by a director on behalf of the board. The director's name must be printed on the balance sheet. For a single-director company, that director signs.

Step 3: Include the Micro Entity Statement

The balance sheet must include a statement, immediately above the director's signature, in these terms:

"For the year ending [date] the company was entitled to exemption under section 384A of the Companies Act 2006 relating to micro-entities. The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476."

And:

"The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts."

Step 4: File With Companies House

You have three main options for filing:

Option A: Companies House WebFiling Service (free)

The Companies House online filing service allows you to enter your micro entity accounts directly. You answer a series of questions, enter the balance sheet figures, and the system generates the iXBRL-tagged accounts automatically. This is the simplest route for most micro entities.

Option B: Third-party software

Accounting software such as AccountsOS, Xero, FreeAgent, or dedicated accounts production software can generate micro entity accounts in the correct iXBRL format for electronic filing. The software submits directly to Companies House via their API.

Option C: Paper filing

You can still file paper accounts by post. However, this is slower (allow at least 5 working days for delivery and processing), offers no confirmation of receipt, and is increasingly discouraged by Companies House. Paper filings must be sent to:

Companies House, Crown Way, Cardiff, CF14 3UZ

Step 5: File the Same Accounts With HMRC (With P&L)

The accounts you file with Companies House do not include a profit and loss account. But HMRC requires full accounts (including P&L) as part of your Corporation Tax return (CT600). You must prepare full accounts under FRS 105 for HMRC purposes, including:

• Full balance sheet
• Profit and loss account
• Tax computation
• CT600 form

The accounts attached to your CT600 must be in iXBRL format. Your accounting software typically handles this. The HMRC filing includes the P&L and detailed computations that are not visible on the public register at Companies House.

This is an important distinction: filing micro entity accounts at Companies House gives you privacy. But HMRC still sees everything.

For a full walkthrough of the CT600 process, see our Corporation Tax Return (CT600) guide.

What Are the Advantages of Filing as a Micro Entity?

1. Financial Privacy

The single biggest advantage. When you file micro entity accounts, the public record at Companies House shows only your balance sheet. Competitors, suppliers, customers, and anyone else searching your company number will not see:

• Your turnover
• Your profit or loss
• Your directors' pay
• Your cost breakdown
• Your margins

For many small business owners, this is the primary motivation. A competitor cannot see how much you are making. A customer cannot use your profit margin to negotiate harder on price.

2. Reduced Preparation Cost

Simpler accounts mean less work for your accountant (or for you, if you prepare your own). Fewer disclosures, no directors' report, no detailed notes. This typically translates to lower accountancy fees. Many accountants charge less for micro entity accounts than for small company accounts.

3. Simpler Accounting Standard

FRS 105 removes complexity. No revaluations, no deferred tax, no complex financial instrument accounting. For a straightforward limited company with simple transactions, FRS 105 keeps things manageable.

4. No Audit Requirement

Micro entities are exempt from statutory audit. This alone saves thousands of pounds per year. Even small companies are usually audit-exempt, but micro entity status reinforces this.

5. No Directors' Report

You do not need to prepare a directors' report. For a micro entity, this saves time and avoids the need to draft narrative about the company's activities, principal risks, and future developments.

6. Free Filing via Companies House WebFiling

The Companies House WebFiling tool handles micro entity accounts well. You can file for free without any third-party software, entering balance sheet figures directly into the online form.

What Are the Disadvantages of Filing as a Micro Entity?

1. Limited Information for Lenders and Mortgage Providers

This is the most common practical problem. When you apply for a mortgage, the lender's underwriter will search your company at Companies House. If they find only a balance sheet with no turnover and no profit figure, they may:

• Ask for additional documentation (management accounts, SA302 tax calculations, accountant's certificate)
• Delay the application while requesting information
• Apply a more conservative income assessment

Some mortgage brokers specifically advise limited company directors to file small company accounts (with a P&L) rather than micro entity accounts, because it gives lenders the information they need upfront.

Worked example: Sarah runs a digital marketing consultancy through her limited company. Turnover is £180,000 and net profit is £85,000. She applies for a mortgage. The lender checks Companies House and sees only a balance sheet showing net assets of £42,000. Without the P&L, they cannot verify her income from the company. Sarah must then provide her SA302, dividend vouchers, and a letter from her accountant confirming the company's trading figures. The application takes three weeks longer than it would have if she had filed a P&L with Companies House.

2. Reduced Credibility With Investors and Partners

If you are seeking investment, filing micro entity accounts sends a signal that you are keeping information private. While this is perfectly legal, some investors and potential business partners prefer to see full accounts as a sign of transparency. A venture capital firm conducting due diligence will ask for full management accounts regardless, but the initial impression matters.

3. No Revaluation of Assets

Under FRS 105, you cannot revalue assets. If your company owns property or other appreciating assets, the balance sheet will understate their value. This matters if you are using the balance sheet to support a loan application, demonstrate company value, or attract investment.

Worked example: James's company bought a small commercial unit for £120,000 five years ago. It is now worth £210,000. Under FRS 105, the balance sheet shows the property at cost less depreciation, perhaps £96,000. Under FRS 102 with a revaluation policy, the balance sheet could show £210,000 (subject to a professional valuation). If James needs to use the company's balance sheet to support borrowing, the FRS 105 figure significantly understates the company's actual worth.

4. No Development Cost Capitalisation

If your company invests heavily in product development, FRS 105 requires you to expense all development costs immediately. Under FRS 102, you could capitalise qualifying development expenditure as an intangible asset and amortise it over its useful life. This means FRS 105 accounts may show a lower profit (or larger loss) in years of heavy development spending.

5. No Deferred Tax Recognition

This is a technical point, but it can distort the accounts. If your company has significant timing differences between accounting profit and taxable profit (for example, due to capital allowances versus accounting depreciation), FRS 105 does not recognise deferred tax. The tax charge in the P&L (which HMRC sees) may not match the economic reality as clearly as it would under FRS 102.

6. Limited Negotiating Power With Suppliers

Some suppliers and credit agencies assess your company based on filed accounts. A micro entity balance sheet on its own may result in lower credit scores and tighter payment terms than accounts showing strong turnover and profit.

When Should You Deliberately Not File as a Micro Entity?

Even if your company qualifies, there are scenarios where filing small company accounts under FRS 102 Section 1A is the better choice:

Planning to Apply for a Mortgage

If you expect to apply for a residential or commercial mortgage in the next 12-24 months, consider filing a P&L with Companies House. It reduces friction with mortgage lenders and speeds up the underwriting process. You can still file as a small company and omit certain details, but including turnover and profit gives lenders what they need.

Seeking External Investment

Investors expect transparency. Filing abbreviated or micro entity accounts may raise questions about what you are hiding. Full small company accounts demonstrate that you have nothing to conceal and reduce the due diligence burden.

Applying for Business Finance or Credit

Business loan providers, invoice finance companies, and trade credit insurers all assess your company's filed accounts. A micro entity balance sheet gives them very little to work with. Filing a P&L alongside the balance sheet strengthens credit applications.

Your Company Owns Appreciating Assets

If your company holds property or other assets whose market value significantly exceeds their historical cost, filing under FRS 102 allows revaluation. This makes the balance sheet a better reflection of the company's true position.

Worked example: Tom's IT consultancy qualifies as a micro entity (turnover £280,000, balance sheet total £190,000, 3 employees). He is planning to buy a house next year. His accountant advises filing small company accounts with a P&L showing £95,000 net profit and £280,000 turnover. The mortgage lender accepts the filed accounts and his SA302 without requesting additional documentation. The application completes in two weeks. Had Tom filed micro entity accounts, the lender would have required a full accountant's certificate, management accounts, and bank statements, adding 3-4 weeks to the process.

You Want to Show a Strong Track Record

If you are tendering for contracts, especially with public sector organisations or larger corporates, they may review your filed accounts as part of their supplier assessment. Micro entity accounts showing only a balance sheet may not inspire confidence. Filing with a visible P&L demonstrates trading history and financial stability.

What Happens When You Exceed the Micro Entity Thresholds?

You do not immediately lose micro entity status. UK law provides a grace period through the "consecutive years" rule.

The Consecutive Years Rule

A company qualifies as a micro entity in a given year if it met the qualifying conditions in that year and the preceding year. Conversely, a company loses its micro entity status only if it fails to meet the conditions in both the current year and the preceding year.

In practical terms:

• Year 1: Qualify as micro entity. File micro entity accounts.
• Year 2: Exceed micro entity thresholds (e.g., turnover hits £700,000). You still qualify as a micro entity for Year 2 because you met the conditions in Year 1.
• Year 3: Still exceed thresholds. Now you have failed for two consecutive years. You must file as a small company (or higher) for Year 3.

The same rule applies in reverse. If you drop back below the thresholds:

• Year 3: File as small company (failed two consecutive years).
• Year 4: Fall back below micro entity thresholds. Still must file as small company (only met conditions for one year).
• Year 5: Still below thresholds. Now qualify again as micro entity (met conditions for two consecutive years).

Exception: First Year of Trading

A newly incorporated company qualifies as a micro entity in its first financial year if it meets the conditions in that year alone. There is no "preceding year" to check.

What Changes When You Move to Small Company Accounts?

If you exceed micro entity thresholds and must file as a small company under FRS 102 Section 1A, the main changes are:

• You must prepare accounts under FRS 102 Section 1A (more complex standard)
• You must prepare a directors' report (though it can be abbreviated)
• You must include more detailed notes to the accounts
• You can still choose to omit the P&L from the Companies House filing (small companies have this option)
• You must disclose related party transactions
• You must disclose directors' remuneration

The transition from FRS 105 to FRS 102 may require restating the opening balance sheet if there are measurement differences (for example, if you now need to recognise deferred tax or revalue assets).

For a full overview of the requirements at each level, see our limited company accounting requirements guide.

Are Micro Entities Exempt From Audit?

Yes. Micro entities are automatically exempt from the requirement to have their accounts audited by a registered auditor, provided:

• The company qualifies as a micro entity
• Members holding at least 10% of the nominal value of the company's issued share capital (or 10% of any class of shares) have not required an audit by serving notice on the company
• The company is not in a category that is ineligible for audit exemption (such as certain regulated companies)

In practice, the vast majority of micro entities will never need an audit. The 10% shareholder rule is rarely triggered in single-director companies where the director holds all the shares.

Even companies that exceed micro entity thresholds but remain small are usually audit-exempt. The audit exemption threshold matches the small company threshold (turnover up to £10.2 million, balance sheet total up to £5.1 million).

The only scenario where a micro entity might face an audit requirement is if minority shareholders demand one. If you have external shareholders holding 10% or more, they have the legal right to require an audit regardless of company size.

What Happened to Abbreviated Accounts?

Abbreviated accounts were abolished for financial years beginning on or after 1 January 2016. Before that date, small companies could file a condensed version of their full accounts with Companies House, known as abbreviated accounts.

The abolition of abbreviated accounts coincided with the introduction of the micro entity regime and the revised small company filing options. The replacement framework provides:

• Micro entities: File a simplified balance sheet and minimal notes under FRS 105
• Small companies: File full accounts but can choose to omit the P&L and directors' report from the Companies House filing (a process sometimes called "filleted accounts")

If anyone mentions "abbreviated accounts" in 2026, they are referring to a regime that no longer exists. The correct terminology is either "micro entity accounts" or "small company accounts with abridgement."

You may still see the phrase used informally, particularly by older accountancy practices. But legally, abbreviated accounts are not an option.

What Is iXBRL and How Does It Affect Micro Entity Filing?

iXBRL (inline eXtensible Business Reporting Language) is the electronic tagging format required for accounts filed at both Companies House and HMRC. Each financial figure in your accounts is tagged with a standardised code that allows computers to read and process the data automatically.

Companies House Filing

If you file micro entity accounts using the Companies House WebFiling service, iXBRL tagging is handled automatically. You enter your figures, and the system generates the tagged document.

If you use third-party software, the software must produce accounts in iXBRL format. Most accounting software does this as standard.

Paper filings do not require iXBRL tagging, but they take longer to process and offer no confirmation of receipt.

HMRC Filing

Corporation Tax returns (CT600) must be filed online, and the accounts attached to the CT600 must be in iXBRL format. This applies regardless of company size. Your accounting software or your accountant's software handles this.

The iXBRL taxonomy used for micro entity accounts is a subset of the full UK GAAP taxonomy, reflecting the simplified disclosures required under FRS 105.

Do You Need to Understand iXBRL?

No. For the vast majority of micro entity directors, iXBRL is invisible. Your software or the Companies House WebFiling tool handles the tagging. You never need to see or edit the underlying XML. It only becomes relevant if you are using bespoke software or filing in unusual circumstances.

Filing Deadlines and Penalties for Micro Entity Accounts

Companies House Deadlines

The filing deadline depends on whether the company is filing its first accounts or subsequent accounts:

For example, if your financial year ends on 31 March 2026, your accounts must be filed with Companies House by 31 December 2026.

Late Filing Penalties

Companies House penalties are automatic. There is no appeals process for simply being late (only for exceptional circumstances such as illness). The penalties escalate:

These penalties double if you file late for two consecutive years.

The penalty is charged to the company, not the director personally. But if the company cannot pay, the director may face personal liability, particularly if the company is insolvent.

HMRC Deadlines

Your Corporation Tax return (CT600) must be filed within 12 months of the end of your accounting period. The corporation tax itself must be paid within 9 months and 1 day of the end of the accounting period.

HMRC penalties for late CT600 filing are:

Interest runs on any unpaid corporation tax from the due date.

For the full annual accounts filing process, see our annual accounts filing guide.

Micro Entity Accounts: A Worked Example

Here is a complete example of what micro entity accounts look like for a typical single-director consultancy.

Company Details

• Name: Smith Digital Solutions Ltd
• Company number: 12345678
• Year-end: 31 March 2026
• Director: John Smith
• Activity: IT consultancy
• Turnover: £185,000 (not disclosed in filed accounts)
• Net profit: £72,000 (not disclosed in filed accounts)

Balance Sheet as at 31 March 2026

Notes to the Accounts

1. Accounting policies

The accounts have been prepared in accordance with FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

2. Statement

For the year ending 31 March 2026, the company was entitled to exemption under section 384A of the Companies Act 2006 relating to micro-entities.

The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts.

Approved by the board of directors and signed on behalf of the board.

J. Smith, Director Date: 15 June 2026

That is the entirety of what is filed at Companies House. The public sees a company with £61,600 of net assets. They do not see the £185,000 turnover, the £72,000 profit, or any other detail about the company's trading.

How Do Micro Entity Accounts Interact With Corporation Tax?

Filing micro entity accounts at Companies House does not change your corporation tax obligations in any way. HMRC requires full accounts.

When you submit your CT600, you must attach:

• A full profit and loss account
• A full balance sheet
• A tax computation showing the calculation from accounting profit to taxable profit
• Any supporting schedules (capital allowances, loan relationships, etc.)

These accounts are prepared under FRS 105 (the same accounting standard), so the figures are consistent. The difference is purely about what goes on the public record versus what HMRC sees privately.

Corporation tax rates for the 2025-26 tax year:

Most micro entities will have taxable profits under £250,000, with many falling into the small profits rate band.

Can a Micro Entity Claim the Employment Allowance?

Yes. Micro entities with employees can claim the Employment Allowance, which reduces the employer's Class 1 National Insurance liability by up to £10,500 per year (2025-26 figure). The company must have at least one employee who is not the sole director. A company whose sole employee is also its only director cannot claim the Employment Allowance.

Do Micro Entities Need to Register for VAT?

Micro entity status has no bearing on VAT registration. VAT registration is determined entirely by turnover:

• Mandatory registration: If your VAT-taxable turnover exceeds the VAT registration threshold (currently £90,000 for 2025-26) in any rolling 12-month period, you must register for VAT.
• Voluntary registration: You can register voluntarily below the threshold if you wish to reclaim VAT on purchases.

A micro entity with turnover of £632,000 (the maximum) would certainly need to be VAT-registered. A micro entity with turnover of £50,000 might choose not to register.

VAT is completely separate from the company size classification. Filing micro entity accounts does not exempt you from VAT obligations.

Can a Micro Entity Use Cash Basis Accounting?

No. Cash basis accounting for income tax purposes (reporting income when received and expenses when paid, rather than when earned or incurred) is available to unincorporated businesses (sole traders and partnerships). It is not available to limited companies.

Limited companies, including micro entities, must use the accruals basis of accounting. Under accruals accounting, income is recognised when earned and expenses when incurred, regardless of when cash changes hands.

FRS 105 is an accruals-based standard. There is no cash basis option for companies.

Micro Entities and Making Tax Digital (MTD)

Making Tax Digital currently affects micro entities in one main way:

MTD for VAT: If your micro entity is VAT-registered, you must keep digital records and file VAT returns using MTD-compatible software. This has been mandatory for all VAT-registered businesses since April 2022.

MTD for Corporation Tax: HMRC has not yet set a start date for MTD for Corporation Tax. When it is introduced, it will likely require digital record-keeping and quarterly reporting for companies. Micro entities will not be exempt based on their size classification, though HMRC may introduce separate thresholds.

MTD for Income Tax Self Assessment (ITSA): Launching April 2026 for sole traders and landlords with qualifying income over £50,000. This does not directly affect limited companies, but if you are a company director who also has self-employment or property income, it may affect your personal tax obligations.

Dormant Companies and Micro Entity Accounts

A dormant company (one that has had no significant accounting transactions during the financial year) still needs to file accounts with Companies House. Dormant companies that qualify as micro entities can file dormant company accounts, which are even simpler than active micro entity accounts.

Dormant company accounts consist of a balance sheet showing only share capital and reserves (typically just the initial share capital), a note confirming the company was dormant throughout the period, and the micro entity exemption statement.

If your company has been dormant and becomes active, you will need to file full micro entity accounts for the first period in which significant transactions occur.

Common Mistakes With Micro Entity Accounts

1. Forgetting to Prepare Full Accounts for HMRC

Some directors assume that because they file simplified accounts with Companies House, they only need simplified accounts. Wrong. HMRC requires a full profit and loss account, balance sheet, and tax computation. You must prepare full FRS 105 accounts even if only a subset is filed publicly.

2. Missing the Separate HMRC Deadline

Companies House and HMRC have different deadlines. Companies House: 9 months after year-end. HMRC CT600: 12 months after year-end. Corporation tax payment: 9 months and 1 day. Some directors confuse these and miss the earlier Companies House deadline.

3. Not Including the Micro Entity Statement

The balance sheet must include the prescribed wording confirming that the company qualifies as a micro entity and that members have not required an audit. Omitting this statement can cause Companies House to reject the filing.

4. Filing the Wrong Format

If your company has exceeded micro entity thresholds for two consecutive years, you can no longer file micro entity accounts. Filing them anyway will result in rejection. Track your thresholds each year.

5. Claiming Micro Entity Status When Excluded

Companies in excluded categories (part of a non-small group, PLCs, regulated financial services) cannot file as micro entities even if they meet the size thresholds. Check the exclusion list before filing.

6. Using Revaluation Under FRS 105

FRS 105 does not permit asset revaluation. If your previous accounts were prepared under FRS 102 with revalued assets, and you switch to FRS 105, you must restate assets to historical cost less depreciation. This can significantly reduce the balance sheet total.

Frequently Asked Questions

Can I switch between micro entity and small company accounts each year?

You can change your filing approach between years, but you must be consistent with the underlying accounting standard within a single set of accounts. If you file micro entity accounts one year (using FRS 105) and want to file small company accounts the next year (using FRS 102 Section 1A), you must ensure the transition is handled correctly, including restating comparative figures under the new standard. In practice, switching back and forth annually is messy and your accountant will advise against it unless there is a specific reason (such as a mortgage application in a particular year).

Do I need an accountant to file micro entity accounts?

No. There is no legal requirement to use an accountant. You can prepare and file micro entity accounts yourself using the Companies House WebFiling service, which is free. However, you still need to ensure the accounts are accurate and comply with FRS 105. For the CT600 filing with HMRC, most directors do use an accountant or accounting software, as the tax computation can be complex. If your company's affairs are straightforward (consultancy income, few expenses, no assets), self-filing is realistic.

What happens if I file micro entity accounts but my company is actually too large?

If you file micro entity accounts when your company does not qualify (because it exceeds the thresholds for two consecutive years), Companies House may accept the filing initially but could later challenge it. More practically, HMRC may query the inconsistency between your filed accounts and your CT600, which shows full financial details. The risk is that you must refile under the correct regime, potentially with penalties for incorrect filing.

Can a micro entity have more than one director?

Yes. Micro entity status is determined by turnover, balance sheet total, and employee numbers, not by the number of directors. A company with five directors but turnover of £200,000 and three employees still qualifies as a micro entity. However, directors are not counted as employees unless they have a contract of employment with the company.

Are micro entity accounts publicly visible?

Yes. All accounts filed at Companies House are public. Anyone can search for your company and view the filed documents, including the micro entity balance sheet. The advantage of micro entity accounts is that less information is visible: no P&L, no directors' report, no detailed notes. But the balance sheet itself is always public.

How long must I keep accounting records if I file as a micro entity?

HMRC requires companies to keep accounting records for at least 6 years from the end of the accounting period they relate to. Companies House requires records to be kept for at least 3 years for a private company. The longer HMRC requirement takes precedence in practice. Keep all invoices, receipts, bank statements, and working papers for at least 6 years.

Can a group company file as a micro entity?

Only if the group as a whole qualifies as a small group. If the parent company prepares consolidated accounts and the group exceeds the small group thresholds, no company within the group can use the micro entity regime. If the group qualifies as small, individual subsidiary companies that meet the micro entity thresholds can file micro entity accounts.

Does filing micro entity accounts affect my credit score?

It can. Credit reference agencies (Experian, Equifax, Creditsafe) assess companies based on filed accounts. A micro entity balance sheet provides limited data for their scoring models. Some agencies default to a lower score when insufficient financial information is available. If you are relying on trade credit, business loans, or supplier terms, filing small company accounts with a P&L may result in a higher credit score.

What is the difference between micro entity accounts and filleted accounts?

Micro entity accounts are prepared under FRS 105 with a simplified balance sheet and minimal notes. Filleted accounts are full accounts prepared under FRS 102 Section 1A (the small company regime) but with the profit and loss account and directors' report removed before filing at Companies House. Both result in a Companies House filing that omits the P&L, but the underlying accounting standard and level of detail are different. Filleted accounts retain more note disclosures and are prepared under a more detailed standard.

Can I file micro entity accounts online for free?

Yes. The Companies House WebFiling service is entirely free and supports micro entity accounts filing. You create an account, enter your company number and authentication code, input your balance sheet figures, and submit. The system handles iXBRL tagging automatically. There is no charge from Companies House for electronic filing.