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For many small UK limited companies, preparing annual accounts is an important part of running the business. However, not every company needs to follow the same reporting requirements. Eligible businesses may be able to use Micro Entity Accounts to simplify their statutory reporting and reduce the amount of financial information they make publicly available.

The micro-entity regime is designed for very small companies that meet specific size criteria. It allows qualifying businesses to prepare accounts under a simplified reporting framework, provided they follow the relevant accounting rules and legal requirements.

For the 2026/27 period, understanding the eligibility thresholds is particularly important because updated company size limits apply to financial years beginning on or after 6 April 2025.

This guide explains what micro entity accounts are, how the thresholds work, which companies are excluded, what the accounts must contain and the advantages and disadvantages directors should consider.

What Are Micro Entity Accounts?

Micro Entity Accounts are statutory accounts prepared by a qualifying small company under the UK's micro-entities reporting regime.

The regime allows eligible companies to use simplified accounting presentation and disclosure requirements compared with those generally applicable to larger businesses. This can make annual reporting more manageable for companies with relatively straightforward finances.

For example, a small consultancy, freelance business operating through a limited company or a company with one director may qualify if it meets the relevant size conditions and is not excluded from the regime.

However, a company does not qualify simply because it has few transactions or only one employee. Eligibility depends on its financial figures, employee numbers, accounting period and other legal conditions.

Micro entities must still maintain adequate accounting records, prepare statutory accounts, meet applicable filing deadlines and comply with their Corporation Tax responsibilities.

Micro Entity vs Small Company Accounts

Micro entity accounts and small company accounts both offer reporting simplifications, but they are intended for companies of different sizes.

The main distinction is the eligibility criteria and the level of reporting required.

For accounting periods beginning on or after 6 April 2025, the general thresholds are:

Criteria	Micro entity	Small company
Annual turnover	£1 million or less	£15 million or less
Balance sheet total	£500,000 or less	£7.5 million or less
Average employees	10 or fewer	50 or fewer

A company generally needs to meet at least two of the three relevant conditions to qualify. The rules for consecutive financial years must also be considered.

For example, a company with turnover of £800,000, a balance sheet total of £400,000 and eight employees meets all three micro-entity size conditions. It may qualify for the regime if the other eligibility requirements are satisfied.

A company with turnover above £1 million could still meet the micro-entity size test if it meets both the balance sheet and employee limits. However, its eligibility must be assessed against the complete rules, including the relevant accounting years.

Small company accounts may be more appropriate where a business exceeds the micro-entity limits but remains within the small company thresholds.

What FRS 105 Means in Practice

FRS 105 is the Financial Reporting Standard applicable to the Micro-entities Regime. It sets out the accounting requirements for companies that qualify for the regime and choose to apply it.

In practice, FRS 105 provides a simplified framework for preparing financial statements. It includes requirements covering the presentation of accounts, accounting treatments and the information that must be disclosed.

A qualifying company can choose to apply the micro-entities regime, but it must follow FRS 105 if it does so. A company that qualifies but chooses not to use the regime must apply another appropriate accounting framework.

FRS 105 is not simply a shorter version of ordinary bookkeeping. Directors must still ensure that transactions are recorded correctly and that the resulting accounts comply with the relevant rules.

The Financial Reporting Council maintains the official FRS 105 accounting standard, which is useful for understanding the framework and its amendments.

Micro Entity Thresholds for 2026/27

The micro-entity thresholds determine whether a company may qualify for simplified reporting. For financial years beginning on or after 6 April 2025, the updated limits are £1 million in annual turnover, £500,000 in balance sheet total and an average of 10 employees.

These are size tests rather than automatic permission to file micro entity accounts. The company must also consider the two-out-of-three rule, consecutive-year requirements and any exclusions that apply to its structure or activities.

Turnover, Balance Sheet and Employee Limits: Two Out of Three

To qualify as a micro entity under the updated rules, a company generally needs to meet at least two of the following three conditions:

• Turnover: Annual turnover must not exceed £1 million.
• Balance sheet total: The balance sheet total must not exceed £500,000.
• Employees: The average number of employees must not exceed 10.

The balance sheet total refers to the total assets shown on the balance sheet, rather than the company's profit or cash balance alone.

The employee test uses the average number of employees during the financial year. It is not simply a count of employees on the final day of the accounting period.

Consider a company with annual turnover of £950,000, total assets of £600,000 and an average of eight employees. It meets the turnover and employee conditions, so it satisfies two of the three size tests. Subject to the remaining legal requirements, it may qualify for the micro-entity regime.

By contrast, a company with turnover of £1.2 million, total assets of £650,000 and 12 employees exceeds all three limits and would not qualify under these thresholds.

For an established company, the size conditions generally need to be met in the current and previous financial year. There are rules allowing a company to retain its classification when its size changes for only one year. Newly incorporated companies have different first-year considerations.

It is therefore important to review more than the latest year's figures before deciding which accounts to prepare.

Old Limits for Years Starting Before 6 April 2025

The previous micro-entity thresholds apply to financial years beginning between 30 September 2013 and 5 April 2025.

Under those earlier rules, the company generally needed to meet at least two of these conditions:

• Annual turnover of £632,000 or less.
• Balance sheet total of £316,000 or less.
• An average of 10 employees or fewer.

These limits are lower than the updated thresholds, which means some companies may qualify for the micro-entity regime under the newer rules even though they would not have qualified under the previous limits.

The relevant date is the start of the accounting period, not simply the date the accounts are prepared or submitted.

For example, if a company's financial year began on 1 January 2025, the old thresholds generally apply to that period even if the accounts are filed later in 2026. If its financial year began on 1 July 2025, the updated thresholds apply.

Always check the accounting period before applying the new figures. Using the wrong thresholds could lead to an incorrect decision about the accounts the company is eligible to prepare.

Which Companies Cannot File Micro Entity Accounts?

Meeting the financial thresholds is only one part of the eligibility test. Certain companies are excluded from the micro-entities regime even if their turnover, assets and employee numbers are below the relevant limits.

Examples of exclusions include:

• Public limited companies, subject to specific exceptions.
• Overseas companies.
• Unregistered companies.
• Charitable companies.
• Certain financial institutions, including specified banking and insurance businesses.
• Companies carrying out certain regulated investment or insurance activities.
• Parent companies of groups that do not qualify as small.
• Parent companies that prepare consolidated group accounts.
• Subsidiaries included in consolidated group accounts, subject to applicable exceptions.

The exact exclusions depend on the company's circumstances and the relevant legislation. Some group structures and specialist company types require particular care.

For example, a small company that is part of a larger corporate group cannot assume that it can use micro entity accounts just because its own turnover is low. The group's structure and reporting obligations may affect eligibility.

If your company has a parent company, subsidiary relationships or regulated activities, seek appropriate advice before selecting the micro-entity reporting framework.

What Do Micro Entity Accounts Include?

Micro entity accounts are simpler than the accounts required for many larger businesses, but they must still meet the statutory requirements.

The company must prepare financial statements for its members and comply with the relevant accounting standard. The information delivered to Companies House can be more limited than the full accounts prepared for the company.

Balance Sheet and Notes

A micro entity's statutory accounts generally include a balance sheet, a profit and loss account and any required notes. An auditor's report is also required unless the company qualifies for and claims an applicable audit exemption.

The balance sheet shows the company's financial position at the end of its accounting period. Depending on the company's circumstances, it may include:

• Fixed assets, such as equipment or vehicles.
• Current assets, including cash and amounts owed by customers.
• Creditors and other liabilities.
• Share capital.
• Shareholders' funds.

The accounts must also include the information and statements required under the applicable rules. The balance sheet must be approved and signed by a director, with the director's name printed.

The notes provide additional information where required. Their content depends on the company's circumstances and may cover matters such as guarantees, advances or credits to directors and members, and certain asset information.

Although the reporting format is simplified, directors should not omit information that is legally required. Accurate bookkeeping remains essential to preparing reliable accounts.

Do HMRC Still Receive Full Accounts?

Yes. This is an important distinction for directors.

Companies House filing requirements and HMRC Corporation Tax reporting requirements are separate. Filing a simplified balance sheet at Companies House does not mean that the company can submit only that information to HMRC.

A company that is required to submit a Company Tax Return generally needs to provide its statutory accounts and the relevant tax computations as part of the return.

The accounts prepared for HMRC may therefore contain more information than the reduced version delivered to Companies House.

Directors should also remember that filing annual accounts does not replace the need to submit a Company Tax Return or pay Corporation Tax when due.

There are also planned changes to Companies House filing requirements. From 1 April 2028, micro entities will be required to deliver a profit and loss account to Companies House, with an option to opt out of its publication on the public register. Companies should monitor the official guidance as implementation details develop.

Advantages and Disadvantages of Micro Entity Accounts

The micro-entity regime can be helpful for eligible companies, but directors should understand both the benefits and the limitations before choosing it.

Advantages of Micro Entity Accounts

1. Simpler reporting requirements

The regime allows qualifying companies to prepare accounts using a simplified reporting framework. This can make the process more manageable for businesses with straightforward finances.

2. Less information on the public register

Eligible micro entities can generally submit a reduced balance sheet to Companies House without delivering a profit and loss account under the current filing rules. This can limit the financial detail available to members of the public, although the information required by law must still be provided.

3. Potentially lower preparation costs

Because the reporting requirements are simpler, some companies may find that preparing their accounts requires less work than preparing accounts under a more extensive reporting framework. Actual costs depend on the complexity of the company's records and whether professional assistance is needed.

4. Suitable for many small businesses

The regime can work well for eligible owner-managed companies, small consultancies and other businesses with relatively straightforward accounting needs.

5. Possible audit exemption

A qualifying micro entity may benefit from the audit exemptions available to small companies, provided it meets the relevant conditions and no rule or valid demand requires an audit.

Disadvantages of Micro Entity Accounts

1. Limited public financial information

A reduced public filing may make it harder for lenders, suppliers or other parties to understand the company's full financial performance. They may request additional accounts or management information before making a decision.

2. Eligibility rules still apply

Directors must check the size thresholds, consecutive-year rules and company exclusions. A business cannot choose the regime solely because it prefers simpler reporting.

3. Bookkeeping remains necessary

Micro entity accounts do not remove the need to maintain proper accounting records, retain supporting documents or record transactions accurately. Errors in the underlying records can still lead to incorrect accounts and tax calculations.

4. Tax reporting is separate

Companies still need to meet their Corporation Tax obligations. Simplified Companies House filing does not remove the need to provide HMRC with the information required for a Company Tax Return.

5. Filing requirements are changing

The planned changes from April 2028 mean that companies should keep up to date with Companies House requirements. Directors should not assume that today's filing arrangements will remain unchanged indefinitely.

The most suitable approach depends on the company's size, structure, reporting needs and the level of financial information required by its stakeholders.

Final Thoughts

Micro Entity Accounts can simplify statutory reporting for eligible UK limited companies, but the rules must be applied correctly. For 2026/27, the updated thresholds are £1 million in turnover, £500,000 in balance sheet total and an average of 10 employees, with at least two of the three conditions generally needing to be met.

Directors should also check which thresholds apply to their accounting period, whether the company is excluded from the regime and what information must be provided to Companies House and HMRC.

If you need help understanding your company's eligibility or preparing its annual accounts, visit Micro Entity Accounts for information about accounting support for UK businesses. You can also explore company accounts and filing resources for related guidance.

Taking time to confirm the correct reporting requirements can help you file accurately, avoid unnecessary complications and keep your company's financial records in good order.