What Are Micro Entity Accounts?

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If you run a very small limited company in the UK, you may be able to prepare and file micro entity accounts instead of full statutory accounts. This is one of the simplest reporting options available and is designed to reduce the amount of information that the smallest companies need to prepare and file each year.

Although the filing requirements are simpler, your accounts still need to be accurate and prepared in line with UK accounting rules. Filing the wrong information or missing the deadline can still lead to penalties from Companies House.

If you are unsure about your year-end responsibilities, it is worth understanding how micro entity accounts work before you prepare your accounts or decide to file them yourself.

What are micro entity accounts?

Micro entity accounts are a simplified version of annual accounts that can be prepared by the UK’s smallest limited companies. They contain much less information than full accounts, making the reporting process easier and less expensive.

To qualify, a company must normally meet at least two of these three conditions for the financial year:

• Annual turnover of no more than £1 million.
• Balance sheet total of no more than £500,000.
• Average of 10 employees or fewer.

If your company qualifies, you can prepare accounts using the micro entity reporting rules set out in FRS 105.

Many small business owners who are preparing their first company accounts also find it helpful to understand how much professional help might cost, so it is worth reading How much do accountants charge for year-end accounts in the UK?

What is the micro entity accounts format?

The micro entity accounts format is much shorter than the accounts prepared by larger companies. Instead of producing detailed financial statements with extensive notes, the accounts mainly include a balance sheet together with only the minimum disclosures required by law.

A typical set of micro entity accounts includes:

• Balance sheet.
• Statement confirming the accounts have been prepared under the micro entities regime.
• Limited notes where required.

Unlike larger companies, a profit and loss account usually does not have to be filed with Companies House, although the company should still keep proper accounting records and prepare the information needed for its Corporation Tax return.

The aim of the format is to reduce paperwork while still providing enough information to meet legal filing requirements.

How does micro entity accounts filing work?

Micro entity accounts are normally filed electronically with Companies House each year before the filing deadline.

The basic process is usually:

1. Prepare your accounting records.
2. Produce the year-end accounts.
3. Approve the accounts.
4. File them with Companies House before the deadline.
5. Submit your Corporation Tax return separately to HMRC.

Even though the accounts are simplified, directors remain responsible for making sure everything is correct before filing. Incorrect accounts can still lead to penalties or requests for corrections.

If your company has stopped trading, the filing rules are different, and you may also want to read Do I have to file dormant accounts with HMRC?

Who can use micro entity accounts?

Many owner-managed businesses qualify, including companies that have only one director and one shareholder.

However, not every company can use the micro entity regime. Certain businesses, such as financial institutions, investment companies and some regulated businesses, cannot prepare micro entity accounts even if they meet the size limits.

If your business grows beyond the qualifying thresholds, you may need to move to the small companies reporting framework instead.

Are micro entity accounts the same as small company accounts?

No. Although both are simplified compared with full statutory accounts, micro entity accounts contain even fewer disclosures than small company accounts.

A company that qualifies as a micro entity can usually choose whether to prepare micro entity accounts or small company accounts, although many choose the micro entity option because it involves less reporting.

Do micro entity accounts mean you do not need to keep records?

No. One common misunderstanding is that simplified accounts mean simplified bookkeeping.

Every limited company must still keep proper accounting records, retain invoices and receipts, and maintain enough information to prepare accurate accounts and tax returns. Good bookkeeping throughout the year makes preparing micro entity accounts much easier and helps reduce the risk of mistakes.

If you are also wondering whether accounting fees can be claimed as a business expense, you may find this guide useful:
Are accountant fees tax deductible.

Should you prepare micro entity accounts yourself?

Some directors choose to prepare and file their own accounts, particularly if the company has very few transactions.

However, many business owners prefer using an accountant because even small errors can cause problems later. An accountant can also help ensure that the accounts meet the legal requirements, are filed on time, and are consistent with the Corporation Tax return.

For many small companies, the cost of professional help is often outweighed by the time saved and the confidence that the accounts have been prepared correctly.

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