What a micro-entity is now
Micro-entities are the smallest category of UK companies and benefit from simplified reporting. From accounting periods starting on or after 6 April 2025 the qualifying limits have increased, so more businesses will meet the test. To be classed as a micro-entity a company must satisfy at least two of the three tests during the year:
Annual turnover: up to £1,000,000 (previously £632,000).
Total assets on the balance sheet: up to £500,000 (previously £316,000).
Number of employees: 10 or fewer (unchanged).
The bigger increases in the turnover and balance sheet ceilings mean many firms that were once “small” may now qualify as micro-entities.
What micro-entity accounts contain?
Micro-entity accounts are intentionally brief and focus on fundamental financial facts. For the 2025/26 and 2026/27 reporting periods, the required elements are:
A balance sheet
- Lists assets and liabilities.
- Shows the company’s net position (assets less liabilities).
- Must be signed by a director.
B profit and loss account
- Summarises income and expenses for the year.
- Reveals whether the company made a profit or a loss.
C Accounting Policy & Notes to Accounts
Basic notes
Only minimal explanatory notes are needed, focusing on essential information rather than extensive disclosures.
What micro-entities do not need to prepare
Compared with small and medium companies, the micro-entity regime removes several reporting requirements. Micro-entities are not required to produce:
A directors’ report (optional).
Extensive notes to the accounts.
A cash flow statement.
A statement of changes in equity.
A detailed narrative on business performance.
What You Don’t Need to Prepare
Unlike small or medium companies, micro-entities are not required to prepare:
- A directors’ report (completely optional)
- Detailed notes to the accounts
- Cash flow statements
- Statement of changes in equity
- Comprehensive business performance analysis
Accounting Standards for Micro-Entities
Micro-entities must prepare their accounts using FRS 105 (Financial Reporting Standard for Micro-entities), which is part of the UKGAAP framework. This standard is specifically designed for the smallest companies and offers substantial simplification.
Key Features of FRS 105
Prescribed Format:
- Balance sheet must follow the exact layout specified in the standard
- No flexibility in how items are presented
- Simplified categories compared to other accounting standards
Reduced Disclosure Requirements:
- Minimal notes to accounts required
- No requirement to disclose director remuneration details
- Limited information about related party transactions
- Simplified treatment of depreciation and amortisation
Practical Implementation:
- Most accounting software includes FRS 105 templates
- Professional accountants familiar with UK small company accounts can prepare these easily
- The standard is designed to be straightforward even for non-accountants
Audit Exemption for Micro-Entities
Almost all micro-entities qualify for automatic audit exemption, which significantly reduces costs and administrative burden.
Audit Exemption Criteria
Your micro-entity is exempt from audit if it meets any of these conditions:
- Revenue up to £10.2 million (far above micro-entity threshold)
- Not a public company and not part of a group requiring audit
- Meets micro-entity criteria (which automatically qualifies you)
What You Need to Do
Even though exempt, you must:
- Include a statement on your balance sheet confirming audit exemption
- Both directors must sign this statement
- Specify which exemption applies (micro-entity status)
- Confirm the company qualifies for the exemption
Important Note: Under the delayed ECCTA 2023 reforms, this statement would become more detailed (“enhanced”), but current requirements remain unchanged.
Filing Micro-Entity Accounts: Current Rules and Pending Changes
What Applies Right Now (2025/26)
For companies filing accounts for the 2025/26 financial year, the existing rules remain in place:
Filing Options Available:
- Submit accounts through Companies House WebFiling service
- Use commercial accounting software that supports iXBRL
- Send paper accounts by post (though this is becoming less common)
What You File:
- Abridged balance sheet only (for public record)
- The profit and loss account are prepared internally but not filed publicly under current rules
- Optional directors’ report (if you choose to include one)
Timing:
- Accounts must be filed within 9 months of your financial year-end
- Late filing penalties apply if you miss this deadline
Major Changes from April 2028
All accounts filings made on or after 1 April 2028 must be filed by commercial software in inline extensible Business Reporting Language (iXBRL) format.
From this date, Companies house web and paper routes will be closed for accounts filings
What’s changing:
- Micro-entities must file both balance sheet AND profit and loss account publicly
- No option to file abridged accounts
- Mandatory use of commercial software for all filings
- Enhanced director’s statement on balance sheet for audit-exempt companies
What This Means for You:
You should continue following current rules but prepare for implementing new rules staring 2028/29
Common Questions About Micro-Entity Accounts
Can a Company Be Micro-Entity and Still Choose Small Company Accounts?
Yes. Qualifying as a micro-entity doesn’t force you to use micro-entity reporting. You can:
- Choose to prepare small company accounts instead
- Opt for more detailed reporting if you prefer
- Switch between micro-entity and small company status year by year
However, once you choose micro-entity status, you must follow FRS 105 and cannot mix standards.
What Happens If My Company Grows Beyond Micro-Entity Limits?
If your company exceeds micro-entity thresholds for two consecutive financial years, you must:
- Reclassify as a small company
- Prepare accounts under FRS 102 (instead of FRS 105)
- Include a directors’ report
- Provide more detailed notes to accounts
- May lose automatic audit exemption if you grow significantly
You don’t need to immediately change if you exceed limits in just one year – the two-year rule provides flexibility.
Can Dormant Companies Use Micro-Entity Accounts?
Yes, but dormant companies have even simpler options:
- Dormant company accounts: Minimal filing requirements
- Micro-entity accounts: If you want to show dormant status within micro-entity framework
- Many dormant companies choose the dormant route rather than micro-entity
Dormant companies must still file accounts but with minimal content showing no trading activity.
Do Micro-Entities Need to Submit VAT Returns?
Micro-entity status doesn’t affect VAT obligations:
- VAT registration depends on turnover exceeding £90,000 (2025 threshold)
- Micro-entities can still register for VAT voluntarily
- VAT filing is separate from Companies House accounts
- Many micro-entities remain below VAT registration thresholds
Do Micro-Entities Files Corporation Tax?
Micro-entities must still file Corporation Tax returns with HMRC:
- Different deadline than Companies House (usually 12 months after year-end)
- Different form (CT600)
- Must calculate tax on profits regardless of Companies House filing
- Micro-entity status doesn’t affect tax rates or calculations
Practical Tips for Managing Micro-Entity Accounts
For First-Time Micro-Entity Directors
Before You Start:
- Confirm your company qualifies as micro-entity
- Choose FRS 105 as your accounting standard
- Set up accounting software with micro-entity templates
- Understand your financial year-end date
During the Year:
- Keep accurate records of all transactions
- Separate business and personal expenses clearly
- Track income and expenses monthly
- Maintain proper documentation for tax purposes
When Preparing Accounts:
- Use the prescribed FRS 105 balance sheet format
- Calculate depreciation consistently
- Review accounts for accuracy before filing
- Get director signatures on balance sheet
For Accountants Working with Micro-Entities
Best Practices:
- Use FRS 105-compliant software templates
- Ensure clients understand abridged vs. full filing requirements
- Keep copies of all filed accounts
- Monitor for threshold changes that might affect classification
- Advise clients about the delayed ECCTA 2023 reforms
Common Mistakes to Avoid:
- Confusing micro-entity with dormant company requirements
- Preparing directors’ report when not required (and adding unnecessary cost)
- Using FRS 102 instead of FRS 105
- Missing the audit exemption statement on balance sheet
- Filing full accounts when abridged is acceptable (under current rules)
Late Filing Penalties: What Micro-Entities Face
Even though micro-entities have simplified accounts, Companies House enforces the same filing deadlines as all companies.
Penalty Structure (2025/26)
| How Late | Penalty Amount |
| Up to 1 month | £150 |
| 1-3 months | £375 |
| 3-6 months | £750 |
| 6+ months | £1,500 |
Important Points:
- Penalties double if you file late in two consecutive years
- Penalties apply regardless of company size
- Directors can be personally liable for persistent late filing
- Companies House may strike off your company for continued non-compliance
How to Avoid Late Filing
- Know your deadline: 9 months from financial year-end
- Prepare early: Start accounts preparation 2-3 months before deadline
- Use software: Accounting software reduces preparation time
- Set reminders: Mark filing date on calendar several months ahead
Consider extensions: File for accounting period extension if needed (but only once every 5 years without valid reason)
The Future of Micro-Entity Reporting
What’s Likely to Change
While the April 2027 ECCTA 2027 reforms have been delayed, the fundamental direction of policy remains:
Increased Transparency:
- Government aims to reduce economic crime through better data
- Profit and loss filing for micro-entities is likely eventually
- Enhanced director statements may still come
Digital Modernisation:
- Software-only filing will likely become mandatory
- WebFiling services may be reduced or关闭
- iXBRL tagging will remain standard
Threshold Adjustments:
- Monetary thresholds may increase again with inflation
- Employee thresholds typically remain stable
- Regular reviews ensure thresholds stay relevant
What’s Unlikely to Change
Core Simplification:
- Micro-entity status will remain the simplest option
- FRS 105 will continue as the standard
- Directors’ report will likely remain optional for micro-entities
Audit Exemption:
- Automatic exemption for micro-entities will persist
- The £10.2 million revenue threshold won’t change significantly
- Simplified exemption statements will remain
Summary Checklist for Micro-Entities (2025/26 and 2026/27)
For Each Financial Year
- ✓ Confirm micro-entity status (2 of 3 thresholds met)
- ✓ Prepare balance sheet using FRS 105 format
- ✓ Calculate profit or loss for the year
- ✓ Include audit exemption statement (signed by directors)
- ✓ File within 9 months of year-end
- ✓ Pay any late filing penalties if applicable
- ✓ Monitor for reform updates from Companies House
Annual Review Questions
- Did turnover exceed £1,000,000?
- Did balance sheet exceed £500,000?
- Do you have more than 10 employees?
- Have you exceeded limits for 2 consecutive years?
- Do you need to reclassify as small company?
Final Thoughts
Micro-entity accounts offer the simplest route for UK companies to meet their statutory filing obligations. With the updated thresholds from April 2025, more businesses can qualify for this streamlined approach, reducing both costs and administrative burden.
While significant changes were planned under ECCTA 2023, the government has delayed implementation, meaning current rules remain stable through 2026/27. This gives micro-entities certainty and time to prepare for any future reforms.
The key is to stay informed about official announcements, maintain good record-keeping practices, and file accounts promptly to avoid penalties. With proper preparation, micro-entity status can significantly simplify your company’s compliance requirements.
Disclaimer: This guide provides general information about micro-entity accounts for 2025/26 and 2026/27. Accounting regulations and filing requirements may change. Always verify current rules with official Companies House guidance at gov.uk or consult a qualified accountant for advice specific to your business situation. The delayed ECCTA 2023 reforms may be announced at a later date, so monitor official sources for updates.