What exactly is a ‘Micro-Entity’?

by | Nov 19, 2021 | Accountancy, Business Start Up, Limited Companies

What is a ‘micro-entity’?

A small business is treated as a micro entity as long as it doesn’t exceed two or more of the following criteria in a financial year:

  • Turnover of over £632,000
  • Balance sheet total of £316,000
  • Employing no more than ten employees.

If you tick off more than two of these criteria, then you’ll no longer be considered to be a micro-entity.

What is FRS 105?

FRS 105 is the Financial Reporting Standard applicable to micro-entities in the UK. The accounting standard applies to the financial statements of small limited companies who choose to apply the micro-entities regime. It applies to accounting periods beginning on or after 1 January 2016.

FRS 105 requires all small businesses to publish their:

  • Income Statement (replacing the Profit and Loss Account)
  • Statement of Financial Position (replacing the Balance Sheet)

You don’t need to provide detailed notes with these statements, just some basic information about your company director’s transactions.

You will need to submit your FRS 105 accounts to HMRC and Companies House and every year as part of your company year end accounts filing..

Are there circumstances where FRS 105 is not appropriate for a micro-entity?

Yes. A good example of this would be if third parties have an interest in the company’s financial affairs and annual accounts. Accounts prepared under FRS 105 may not provide the level of detail that the third party requires.

In these situations, companies may decide to prepare accounts under a different Financial Reporting Standard called FRS 102. This requires more detailed information to be published in the accounts, and the application of specific accounting principles that aren’t required under FRS 105.

If you have any further questions on this issue or for any other matter, please don’t hesitate to contact us.

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