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How are a micro-entity's fixed assets measured, and can it revalue them?

At cost. It cannot revalue them.

Equipment and property go on the balance sheet at what they cost. Most then lose value each year through depreciation, though land usually does not. The accounts cannot show a higher current value, but must write an asset down if its value falls below that figure.

Published

At a glance

What it covers
, and property held as an investment
On the balance sheet
Cost, less and any , all on one line: fixed assets
Revaluing
Not allowed. A may use only the cost rules
For tax
Depreciation is added back. may be given instead

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

What to do

  1. Record each new item at its cost, including and installation.

  2. Choose a useful life and a method, and start when the item is ready to use.

  3. At each year end, look for signs of damage or a fall in value. Write the item down if it is worth less than its figure on the . Check too whether an earlier still applies.

  4. In the tax computation, add back the depreciation. Claim instead where they are available.

Sources

How it works

Fixed assets on your balance sheet: what goes into the cost

An item goes on the only if it will probably bring the company future and its cost can be measured reliably. Those two conditions set no minimum amount.

The cost is the price paid, including legal fees, import duties and taxes you cannot get back, less . It also includes the costs of getting the item to where it is needed and working, such as , installation and testing.

If the company will have to remove the item and restore the site later, an estimate of that cost is included too.

VAT you can reclaim is not part of the cost. VAT you cannot reclaim is, where that is practicable and the amount is .

For example

Say your company buys a printer for £2,000, plus £400 VAT it cannot reclaim, and pays £150 for delivery and set-up.

Price
£2,000
VAT it cannot reclaim
£400
Delivery and set-up
£150
Cost on the balance sheet
£2,550

All three are part of the printer's cost.

Some costs never go into an asset. They are costs of the year you spend them:

  • opening a new facility

  • launching a new product or service, including advertising

  • doing in a new place or with a new kind of customer, including staff training

  • running the business generally, such as administration.

Day-to-day servicing is a cost of the year too.

Sources

The detail The cost rules

paragraph 12.3: an item of or investment property is recognised as an asset if, and only if, it is probable that future economic benefits will flow to the micro-entity and its cost can be measured reliably. Paragraph 12.8: measured at cost on initial recognition. Paragraph 12.9(a): purchase price, including legal and brokerage fees, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. Paragraph 12.9(b): costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, such as site preparation, initial delivery and handling, installation and assembly, and testing. Paragraph 12.9(c): the initial estimate of the costs, recognised and measured under Section 16 Provisions and Contingencies, of dismantling and removing the item and restoring the site on which it is located. Paragraph 24.11: expenses exclude recoverable VAT; irrecoverable VAT allocable to fixed assets is included in their cost where practicable and material.

Paragraph 12.10: expensed when incurred are the costs of opening a new facility; of introducing a new product or service (including advertising and promotional activities); of conducting business in a new location or with a new class of customer (including staff training); and administration and other general overhead costs. Paragraph 12.14: day-to-day servicing is recognised in profit or loss as incurred. Paragraph 12.5: the cost of replacing a part (such as a roof) is added to the asset if it gives incremental future economic benefits, and the replaced part is derecognised. Paragraph 12.7: land and buildings are separable assets, accounted for separately even when acquired together.

Sources

Depreciation: the cost spread over the item's life

After you buy an item, the balance sheet shows its cost less the so far, and less any .

Depreciation spreads an item's cost over the years the company expects to use it, its "". If you expect the item to be worth something at the end, take that "" off first. What is left is spread over the life.

For example

Say your company buys a van for £12,000, to use for 4 years. Its residual value is £2,000, and you charge equal amounts each year.

Amount to spread
£12,000 − £2,000
£10,000
Depreciation each year
£10,000 ÷ 4
£2,500

After one year, the van shows on the balance sheet at £9,500.

Choose a method that matches how the company uses up the item. Equal amounts each year, called "", is one. A falling amount each year, or a charge based on how much the item is used, are others.

Depreciation starts when the item is ready to use. It does not stop when the item sits idle, unless it is fully depreciated. With a method based on usage, though, the charge can be nil while nothing is produced. Land usually has no limit to its life, so it is not usually depreciated.

Each year's depreciation is usually a cost in the , on the line for depreciation and other amounts written off assets. The exception is where another rule makes it part of the cost of something else, such as a manufacturer makes.

If there are signs that the life, residual value or pattern of use has changed, review your estimates.

Sources

The detail The depreciation rules

FRS 105 paragraph 12.14: after initial recognition, all items are measured at cost less any accumulated depreciation and any accumulated impairment losses. Appendix I: depreciation is the systematic allocation of the depreciable amount of an asset over its useful life; the depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value; residual value is the estimated amount that would currently be obtained from disposal, after estimated costs of disposal, if the asset were already of the age and condition expected at the end of its useful life.

Paragraph 12.15: major components with significantly different patterns of consumption are depreciated separately; land generally has an unlimited useful life and is not usually depreciated. Paragraph 12.17: the depreciable amount is allocated on a systematic basis over the useful life. Paragraph 12.19: depreciation begins when the asset is available for use and does not cease when it becomes idle or is retired from active use, unless fully depreciated; however, under usage methods the charge can be zero while there is no production. Paragraph 12.21: the method reflects the pattern in which future economic benefits are expected to be consumed; straight-line, diminishing balance and units of production are possible methods.

Paragraph 12.16: the depreciation charge is recognised in profit or loss unless another section requires it to form part of the cost of an asset; for example, depreciation of manufacturing equipment is included in the cost of inventories. Paragraphs 12.18 and 12.22: where there are indications of change, the reviews its estimates and accounts for any change as a change in an accounting estimate. The profit and loss format line E is "Depreciation and other amounts written off assets".

The Periodic Review 2024 amendments, which apply for beginning on or after 1 January 2026, changed paragraphs 12.5, 12.20, 12.23 and 12.24. Paragraph 12.20 now says expected future reductions in the selling price of an item produced using an asset could indicate technical or commercial obsolescence. The September 2024 edition includes those amendments. The later Adapted and size thresholds amendments made no change to Section 12 or Section 22.

Sources

Write-downs: the value can go down, but it cannot be revalued up

At each , look for signs that an item may be worth less than its "", the figure on the balance sheet. Signs include a fall in market value much bigger than age or normal use would explain. Damage, the item going out of date, or the item sitting idle are signs too.

If there are signs, work out the item's "". This is the higher of two figures: what it would sell for, less the costs of selling, and its "" to the company. If the recoverable amount is lower than the carrying amount, write the item down. The loss is a cost straight away.

For example

Say Bramley Studio's equipment is damaged, and its recoverable amount at 31 December 2026 is £3,000. Its carrying amount is £5,400.

Write-down
£5,400 − £3,000
£2,400

The £2,400 is a cost in 2026's profit and loss account straight away.

A write-down can be reversed in a later year, but only if the reasons for it no longer apply.

So at each year end, also look for signs that an earlier write-down has gone or shrunk. These are generally the opposite of the signs of a fall in value.

If there are signs, work out the recoverable amount again. If it is now above the carrying amount, write the item back up to it, subject to the cap below. The increase goes straight into that year's profit and loss account.

There is a cap. The item cannot go above the figure it would have shown, after normal depreciation, if it had never been written down.

Our working: the cap means a reversal can only undo the earlier write-down. It cannot lift the item above cost less depreciation, so it never becomes a .

For example

Say a machine cost £10,000, depreciated at £2,000 a year. Three years on, it shows £2,000 after a write-down, and its market has recovered.

Recoverable amount now
£5,000
Figure if never written down
£10,000 − (3 × £2,000)
£4,000
Carrying amount now
£2,000
Write-back, capped
£4,000 − £2,000
£2,000

The machine goes back to £4,000, not £5,000, and the £2,000 goes in this year's profit and loss account.

After a write-back, work out depreciation again. Spread the new carrying amount, less any residual value, over the rest of the item's life.

A micro-entity cannot revalue its upwards, however much they are worth. That is because the law does not let micro-entities use the other valuation rules in company law. Only the cost rules are left.

For example

Say Bramley Studio's equipment could sell for £8,000 at 31 December 2026. Its carrying amount is £5,400.

The balance sheet still shows £5,400. The extra £2,600 is not recorded.

Sources

The detail Impairment and the ban on revaluing

FRS 105 paragraph 12.23 applies Section 22 to property, plant and equipment and ; that section explains "when it recognises or reverses an impairment loss". Paragraph 22.6: at each reporting date the micro-entity assesses whether there is any indication of impairment, and if so estimates the recoverable amount. Paragraph 22.7: indications include a significant decline in market value, evidence of obsolescence or physical damage, and significant adverse changes in use, including the asset becoming idle. Paragraph 22.9: recoverable amount is the higher of less costs to sell and value in use. Paragraphs 22.2 and 22.5: if the recoverable amount is less than the carrying amount, the carrying amount is reduced to it, and the loss is recognised immediately in profit or loss. Paragraph 22.20: for all assets other than goodwill, an impairment loss is reversed in a subsequent period if, and only if, the reasons for it have ceased to apply; at each reporting date the micro-entity assesses whether there is any indication that a prior loss may no longer exist or may have decreased, and such indications are generally the opposite of those in paragraph 22.7. Paragraph 22.21, where the prior loss was based on the recoverable amount of the individual asset: the recoverable amount is estimated at the current reporting date; if it exceeds the carrying amount, the carrying amount is increased to it, subject to a limit, and the reversal is recognised immediately in profit or loss. The reversal "shall not increase the carrying amount of the asset above the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years". Afterwards the depreciation charge is adjusted to allocate the revised carrying amount, less any residual value, over the remaining useful life. The Periodic Review 2024 amendments changed paragraphs 22.1, 22.12 and 22.13; fair value less costs to sell is now "a measurement based on fair value". Appendix I: carrying amount is the amount at which an asset is recognised in the statement of financial position.

SI 2008/409, regulation 3(1A), disapplies the and fair value accounting for a micro-entity using the micro-entity formats or notes exemption, so it may apply only the (FRS 105 Appendix III, paragraph A3.8). Where FRS 105 uses a fair value at initial recognition, it is a way of estimating cost and does not breach that prohibition (paragraph A3.9). Paragraph 2.36 sets the order of evidence: an unadjusted quoted price in an active market, then a recent orderly transaction price, then another valuation technique.

Sources

Depreciation in your tax computation: added back

Your company's for tax starts from its accounts, with the changes tax law requires. One of those changes is depreciation.

Depreciation charged in the accounts is not allowed as a for tax. You add it back when you work out .

Why? take its place. They let a company write off the cost of certain capital assets against taxable income. For , they give relief at set rates.

For example

Bramley Studio's 2026 accounts charge £1,800 of depreciation. Its capital allowances for 2026 are also £1,800.

Add back depreciation
£1,800
Less capital allowances
−£1,800
Effect on taxable profit
£0

Here the two cancel out.

The , one type of capital allowance, has a maximum of £1,000,000 for a 12-month period. Whatever differences arise between the accounts and the tax figures, a micro-entity shows no .

Sources

The detail The tax rules

Corporation Tax Act 2009, section 46(1): the profits of a must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law. Section 53: no deduction is allowed for , subject to provision to the contrary in the Corporation Tax Acts. HMRC's Business Income Manual (BIM37007): "you add back depreciation when you compute the taxable profits". HMRC's Capital Allowances Manual (CA20006): depreciation charged in the accounts is not allowed as a deduction in computing taxable profits, and capital allowances may be given instead; plant and machinery allowances give relief at prescribed rates. CA10020: capital allowances take the place of depreciation, which is not normally deductible. Capital Allowances Act 2001, section 51A(5) and (6): the maximum annual investment allowance is £1,000,000, proportionately increased or reduced for a period that is more or less than a year. FRS 105 paragraph 24.7: a micro-entity shall not recognise deferred tax.

Sources

Consequences

If you get it wrong

If your accounts show a above its cost less and write-downs, they do not follow the micro-entity rules.

If you depreciation in the , your taxable profit will be too low.

Sources

Less common situations

Selling or scrapping an item. Take it off the . Any gain or loss goes in the , and a gain is not turnover.

Replacing a major part, such as a roof. Add the cost of the new part to the asset if it brings extra future . Take the old part off.

Land and buildings bought together. Account for them separately.

Items that last less than a year. HMRC accepts that spending on an item with a working life of under a year is a , not capital.

Agreeing to buy equipment, or offering it as security. not on the balance sheet, and assets given as security, go in the note on commitments.

An item valued when it first comes in. Sometimes the standard uses a market value for an item when it first arrives. That is a way of estimating its cost, not a .

Sources

The detail Disposals, short-life items and notes

paragraph 12.26: an item is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Paragraph 12.27: the gain or loss is recognised in profit or loss when the item is derecognised (unless Section 15 Leases requires otherwise on a ), and gains are not classified as turnover. HMRC's Business Income Manual (BIM35415): where a tangible asset's life is less than one year, HMRC accepts that expenditure on it is of a revenue nature. FRS 105 paragraph 12.28 routes unrecognised commitments to acquire property, plant and equipment or investment property, and such items given as security, to the Section 6 notes, which are the commitments, guarantees and contingencies notes in paragraphs 6A.4 and 6A.5.

Sources

Worked example: Bramley Studio Ltd

Bramley Studio Ltd shows of £7,200 at 31 December 2025 and £5,400 at 31 December 2026. Its was £1,600 for 2025 and £1,800 for 2026.

Say the fixed assets are two items of studio equipment, used on a continuing basis in the . Each has a nil and is depreciated straight-line:

  • item 1 cost £8,000, was ready for use from 1 January 2025, and has a 5-year life

  • item 2 cost £800, was bought in December 2025, was ready for use from 1 January 2026, and has a 4-year life.

Depreciation (line E)

  • Item 1

    2026
    £1,600
    2025
    £1,600

    £8,000 ÷ 5

  • Item 2

    2026
    £200
    2025
    £0

    £800 ÷ 4. Ready for use from 1 January 2026, so no charge in 2025

  • Depreciation

    2026
    £1,800
    2025
    £1,600

    Matches the accounts

Sources

Fixed assets at 31 December (line B)

  • Cost

    2026
    £8,800
    2025
    £8,800

    £8,000 + £800

  • Less depreciation to date

    2026
    (£3,400)
    2025
    (£1,600)

    2026: £1,600 + £1,800

  • Fixed assets

    2026
    £5,400
    2025
    £7,200

    Held for use on a continuing basis, so they are fixed assets

Sources

For tax, Bramley adds back the £1,800 of depreciation for 2026 and the £1,600 for 2025. Its equal those amounts: £1,800 for 2026 and £1,600 for 2025. So in each year they cancel out.

Sources

Not covered here

How are worked out, , deferred tax, and revaluing under FRS 102. See the annual investment allowance, revenue or capital spending and intangible assets and goodwill. Also see why micro-entity accounts show no deferred tax and who can use the micro-entity rules.

Where this comes from

89 official sources. Open a group to see them.

The law 22 sources
HMRC 16 sources
GOV.UK 18 sources
Companies House 2 sources
FRC 31 sources

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