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Is my company a micro-entity?

Yes, if it is small enough.

Your company meets the test in a year if it meets 2 of 3 limits: turnover up to £1 million, balance sheet total up to £500,000, 10 employees or less. After the first year, status changes only after two years in a row; some companies are left out whatever their size.

Published

At a glance

Applies to
Private limited companies. Charities, , banks, insurers and some companies are left out, however small
Which limits
The £1 million and £500,000 limits apply to starting on or after 6 April 2025
If you get it wrong
are presumed to give a only if your company really qualifies

Sources

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

Does this apply to me?

  • You run a one-person company with turnover of £1 million or less. Usually yes. With 10 or fewer , you meet 2 of the 3 limits.

  • Your company is a charity, a public company, a bank, an insurer or one of certain other financial firms. No, whatever its size.

  • Your company owns another company, or is owned by one. Maybe. Read "Companies in a " below.

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What to do

  1. Check your company is not left out. Charities, , banks, insurers and certain other financial firms cannot be .

  2. Pick the right limits. If your started on or after 6 April 2025, use £1 million and £500,000.

  3. Measure your company. Find its turnover for the year, its and its average number of .

  4. Count the limits you meet. Two or three means your company meets the conditions for that year.

  5. After your first year, compare with last year. Your status changes only if the result changes two years running.

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How it works

Two of three limits decide it

Your company meets the conditions in a year if it meets at least 2 of these 3 limits:

  • Limit

    Turnover

    Micro-entity
    £1 million or less

  • Limit

    Balance sheet total

    Micro-entity
    £500,000 or less

  • Limit

    Employees, on average

    Micro-entity
    10 or less

These limits are for a full 12-month .

For example

Say a company has turnover of £1.5 million, a balance sheet total of £300,000 and 6 employees.

It fails the turnover limit but meets the other two.

Two of three is enough, so it meets the conditions for that year.

Sources

The detail The exact rule

Companies Act 2006, section 384A(4): the qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements: turnover not more than £1 million; not more than £500,000; number of not more than 10. GOV.UK and Companies House give the same figures, Companies House expressing the employee condition as no more than 10 employees on average.

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The balance sheet total is what your company owns, before its debts

Your shows what your company owns, owes and is owed. The balance sheet total adds up only the assets on it: what the company owns and is owed. You do not take off what it owes.

Why not take off debts? The law defines the total as the assets shown on the balance sheet. It says nothing about taking debts off.

For example

At 31 December 2025, Bramley Studio Ltd had fixed assets of £7,200 and current assets of £21,090. It owed £8,965.

Fixed assets
£7,200
Current assets
£21,090
Balance sheet total
£28,290

The £8,965 it owed is not taken off.

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The detail The exact rule

Section 384A(6): the balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet.

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Count employees month by month

The employee figure is an average over the year. For each month, count the people your company employs under a . Add up the monthly counts, then divide by the number of months.

As a director, you count only if the company employs you under a contract of service. A director without one does not count. The law does not mention directors directly.

For example

Priya works for Bramley Studio Ltd under a service contract all year. Say one year it also employs an assistant from July to December.

Priya
12 months × 1
12
Assistant
6 months × 1
6
Average employees
18 ÷ 12
1.5

If instead

Priya has no contract of service.

Average employees
6 ÷ 12
0.5

Either way, a company with one director and no other staff is far under 10. So it meets this limit.

Sources

The detail The exact rule

Section 384A(7): the number of employees means the average number of persons employed by the company in the year. Find, for each month in the financial year, the number of persons employed under contracts of service by the company in that month (whether throughout the month or not). Add the monthly totals together, and divide by the number of months in the financial year. The section does not mention directors expressly. , the for micro-entities, requires a note of the average number of persons employed (paragraphs 6.2(b) and 6A.2) and adds nothing on who counts.

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Your first year counts on its own

In your company's first financial year, you look only at that year. If it meets 2 of the 3 limits, it is a for that year.

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After that, it takes two years in a row to change

From your second year on, your status changes only if the result changes two years in a row.

So one year over the limits does not end your status. If your company meets the limits again the next year, nothing changes. It works the other way too. A company that is not a micro-entity must meet the limits two years running to become one.

For example

Say Bramley Studio Ltd's 2027 turnover is £1,200,000 and its balance sheet total £640,000. It meets only the employee limit.

It met the limits in 2026, so 2027 is its first year failing them.

It is still a micro-entity for 2027.

If instead

It fails at least 2 of the 3 limits again in 2028.

That is two years in a row, so it stops being a micro-entity for 2028.

Sources

The detail The exact rule

Section 384A(1): a company qualifies as a micro-entity in relation to its first financial year if the qualifying conditions are met in that year. Section 384A(2): subject to subsection (3), it qualifies in relation to a subsequent financial year if the qualifying conditions are met in that year. Section 384A(3): in relation to a subsequent financial year, where on its balance sheet date a company meets or ceases to meet the qualifying conditions, that affects its qualification as a micro-entity only if it occurs in two consecutive financial years.

FRS 105's note on the law (Appendix III, paragraph A3.4) puts it this way: a company that qualified in one period but no longer meets the conditions in the next may continue to apply the in that next period, and if it then meets the conditions again, the regime continues uninterrupted.

If a company stops being a micro-entity, it may still qualify as small. The limits are £15 million turnover, £7.5 million balance sheet total and 50 employees, again on a two-out-of-three basis (section 382).

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The limits went up on 6 April 2025

The £1 million and £500,000 limits apply to financial years that started on or after 6 April 2025. For years that started between 30 September 2013 and 5 April 2025, they were £632,000 and £316,000. The employee limit stayed at 10.

When you look back at a year before the change, you test it with the new limits. So a year that passes the new limits counts as a year your company met the conditions. That lets the higher limits help straight away.

For example

Say your company's financial year runs from 1 May 2025. Last year its turnover was £800,000 and its balance sheet total £400,000.

Both were over the old limits, but under the new ones. So last year counts as a year it met the conditions.

If it meets them again this year, it is a micro-entity this year.

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The detail The exact rule

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (S.I. 2024/1303) came into force on 6 April 2025. Regulation 2(2): the amendments have effect in relation to financial years beginning on or after 6 April 2025. Regulation 9(3) replaced "Not more than £632,000" with "Not more than £1 million" for turnover, and "Not more than £316,000" with "Not more than £500,000" for the balance sheet total. It did not change the employee limit.

Regulation 3(3): for a financial year beginning on or after 6 April 2025, the company is treated as having met the qualifying conditions in any previous year in which it would have met them had the new figures applied to that year. Companies House gives £632,000 and £316,000 as the figures for beginning between 30 September 2013 and 5 April 2025.

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Some companies can never be micro-entities

Your company cannot use the micro-entity rules, however small, if at any time in the year it was:

  • a

  • a bank, insurer, or investment firm

  • in a that includes a bank, an insurer or certain other businesses the law lists (an "")

  • a charity

  • certain investment or financial holding companies

The accounting standard's note on the law says public companies, banks, insurers and similar firms are left out for reasons of public interest.

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The detail The exact rule

Section 384B(1): the micro-entity provisions do not apply to a company's accounts for a financial year if the company at any time within that year was excluded from the by section 384; would have been an investment undertaking or a financial holding undertaking (as defined in Directive 2013/34/EU, were the UK a member State); was a credit institution that is a CRR firm; would have been an insurance undertaking (as defined in Directive 91/674/EEC); or was a charity.

Section 384(1) excludes a company that at any time in the financial year was a public company; an authorised insurance company, a banking company, an e-money issuer, a or a UCITS management company; a company carrying on insurance market activity; a scheme funder of a Master scheme; or a member of an ineligible group. Section 384(2): a group is ineligible if any member is a traded company, a body corporate (other than a company) whose shares are admitted to trading on a UK regulated market, a person (other than a small company) with Part 4A permission under the Financial Services and Markets Act 2000 to carry on a regulated activity, an e-money issuer, a small company that is an authorised insurance company, a banking company, a MiFID investment firm or a UCITS management company, a person carrying on insurance market activity, or a scheme funder of a Master Trust scheme.

FRS 105, Appendix III, paragraph A3.5, describes the section 384 exclusions as those "for reasons of public interest".

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Companies in a group

If your company is a , it qualifies only if the group it heads is also small. If it prepares , it cannot use the micro-entity rules at all.

If your company's accounts are included in group accounts, it cannot use the micro-entity rules either.

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The detail The exact rule

Section 384A(8): a parent company qualifies as a micro-entity in relation to a financial year only if it qualifies under subsections (1) to (7) and the group headed by it qualifies as a small group under section 383(2) to (7). Section 383(4): a group meets the qualifying conditions in a year in which it satisfies two or more of: aggregate turnover not more than £15 million net (or £18 million gross); aggregate balance sheet total not more than £7.5 million net (or £9 million gross); aggregate number of employees not more than 50. Section 384B(2): the micro-entity provisions do not apply if the company is a parent company which prepares group accounts for that year as permitted by section 399(4), or is not a parent company but its accounts are included in consolidated group accounts for that year.

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Consequences

If you get it wrong

The law presumes that give a . That presumption applies only if your company really qualifies as a micro-entity for the year.

Micro-entity accounts must say, above your signature on the , that they follow the micro-entity rules. If you approve accounts that break the law, you may commit a criminal offence. That applies if you knew, or did not care whether they complied, and took no reasonable steps to put it right. It is punishable by a fine.

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Less common situations

Your financial year is not 12 months. Only the turnover limit changes, in proportion to the length of the year. Our working: for a 9-month year, 9/12 × £1 million is £750,000. The law does not say whether to count days or months.

Your company grows past the limits for good. After two years over the limits, it stops being a . It may still be a , with higher limits.

Sources

Worked example: Bramley Studio Ltd

Is Bramley Studio Ltd a for its year to 31 December 2026? That year started on 1 January 2026, after 6 April 2025, so the new limits apply.

Its 2026 turnover is £84,000. Priya, its director, is its only , under a service contract. At 31 December 2026, its are £5,400 and its current assets £31,900. Say also that it is not in a group, not a charity and not a financial firm.

The three limits for 2026

  • Turnover

    Bramley
    £84,000
    Limit
    £1,000,000

    Met. A full 12-month year, so no adjustment

  • Balance sheet total

    Bramley
    £37,300
    Limit
    £500,000

    Met. £5,400 + £31,900. Nothing owed is taken off

  • Employees, on average

    Bramley
    1
    Limit
    10

    Met. Priya in each of 12 months: 12 ÷ 12

  • Result

    Bramley
    3 of 3
    Limit
    2 needed

    The conditions are met for 2026

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Now check the year before. Bramley's 2025 turnover was £76,000. Say Priya was its only employee that year too. Its at 31 December 2025 showed fixed assets of £7,200 and of £21,090.

The three limits for 2025

  • Turnover

    Bramley
    £76,000
    Limit
    £632,000

    Met. That year started before 6 April 2025, so the old limit applied

  • Balance sheet total

    Bramley
    £28,290
    Limit
    £316,000

    Met. £7,200 + £21,090

  • Employees, on average

    Bramley
    1
    Limit
    10

    Met

  • Result

    Bramley
    3 of 3
    Limit
    2 needed

    Also met on the new limits, £1 million and £500,000

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Bramley met the conditions in both 2025 and 2026, two years in a row. So it is a micro-entity for 2026.

Its first does not change this. That year ran from 11 March to 31 December 2024, so the turnover limit was scaled down. Our working: 296 days of a 366-day year gives £632,000 × 296 ÷ 366, about £511,126.

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Not covered here

What must contain, the choice of , and small company accounts. See what micro-entity accounts contain, which accounting standard applies and micro-entity or small company accounts. Companies House plans a change to what micro-entities file from 1 April 2028.

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Where this comes from

44 official sources. Open a group to see them.

The law 27 sources
HMRC 3 sources
GOV.UK 6 sources
Companies House 1 source
FRC 7 sources

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