Can my company use the micro-entity accounting rules, or should it use the small company rules?

Companies Act 2006, section 384A(4): the qualifying conditions are met in a year in which the company satisfies two or more of: turnover not more than £1 million; balance sheet total not more than £500,000; number of employees not more than 10. The figures were substituted from 6 April 2025 by SI 2024/1303, and have effect for financial years beginning on or after 6 April 2025 (regulation 2(2)). The earlier FRS 105 figures were £632,000 and £316,000 (Appendix III, paragraph A3.3, before the March 2025 amendment).

Section 384A(5): for a financial year that is not in fact a year, the maximum turnover figure is proportionately adjusted. Section 384A(6): the balance sheet total means the aggregate of the amounts shown as assets in the balance sheet. Section 384A(7): the number of employees is the average number of persons employed, found by taking for each month the number employed under contracts of service (whether throughout the month or not), adding the monthly totals and dividing by the number of months. Micro-entity balance sheet Format 2 lists called up share capital not paid, fixed assets, current assets, and prepayments and accrued income under "Assets", and creditors under "Capital, reserves and liabilities" (SI 2008/409, Schedule 1, Section C).

FRS 100, footnote 2 to paragraph 4: "turnover and balance sheet total shall be measured in accordance with FRS 105".

SourcesThe law·FRC

Section 384A(1): a company qualifies as a micro-entity in its first financial year if the qualifying conditions are met in that year. Section 384A(3): in a later year, where on its balance sheet date a company meets or ceases to meet the qualifying conditions, that affects its qualification only if it occurs in two consecutive financial years. FRS 105 Appendix III, paragraph A3.4, explains that a company which qualified in one period but no longer meets the conditions in the next may continue to apply the regime in the next period. Section 384A(8): a parent company qualifies only if the group it heads qualifies as a small group under section 383.

Section 384B(1): the micro-entity provisions do not apply for a financial year if at any time in it the company was excluded from the small companies regime by section 384, or would have been an investment undertaking, a financial holding undertaking, a credit institution that is a CRR firm, or an insurance undertaking, or was a charity. Section 384B(2): they also do not apply if the company is a parent company that prepares group accounts as permitted by section 399(4), or is not a parent company but its accounts are included in consolidated group accounts for the year.

FRS 105 paragraph 1.2 and Appendix I: a micro-entity is a company meeting section 384A and not prevented by section 384B, that chooses to apply the micro-entities regime.

SourcesThe law·FRC

FRS 105 Overview (iv): the regime is optional; a micro-entity that chooses it must apply FRS 105; a company that qualifies but does not choose it must apply another standard, with the options in FRS 100. FRS 100 paragraph 4 applies to financial statements "that are not required by the Act or other legislation or regulation to be prepared in accordance with adopted IFRS". Paragraph 4(a): "If the financial statements are those of an entity that is eligible to apply FRS 105, they may be prepared in accordance with that standard". Paragraph 4(b): for "an entity that is eligible to apply FRS 105 but chooses not to do so, they must be prepared in accordance with FRS 102, adopted IFRS or, if the financial statements are the individual financial statements of a qualifying entity, FRS 101".

FRS 105 paragraph 1.1: statements that include the micro-entity minimum accounting items are "presumed in law" to show a true and fair view. The minimum items are the contents of Sections 3, 4, 5 and 6 (Appendix I). Paragraph 1.3: extra information is permitted but not required; if given, the micro-entity must have regard to any related requirement of FRS 102 Section 1A. Companies Act 2006, section 393(1A)(a): where the accounts comprise only micro-entity minimum accounting items, the directors must disregard any provision of an accounting standard which would require additional information; section 393(1A)(c): for an additional item, they must have regard to any provision of an accounting standard relating to it. Section 396(2A): the minimum items are presumed to give the required true and fair view.

Section 414(3): the statement above the signature refers to the micro-entity provisions for micro-entity accounts, and to the small companies regime for other small company accounts. FRS 102 paragraph 1A.6A sets the small company wording.

SourcesThe law·FRC

FRS 105 Overview (iii): FRS 105 is based on FRS 102, but its accounting requirements are adapted to satisfy the legal requirements applicable to micro-entities and to reflect their simpler nature and smaller size. Appendix III paragraph A3.8: micro-entities are not permitted to apply the Alternative Accounting Rules or the Fair Value Rules, so may apply only the Historical Cost Accounting Rules. SI 2008/409, regulation 3(1A), disapplies Sections C (alternative accounting rules) and D (fair value accounting) of Part 2 of Schedule 1 for a micro-entity using the micro-entity formats or notes exemption. Paragraph 24.7: a micro-entity shall not recognise deferred tax; paragraph 24.2 describes deferred tax as the future tax consequences of transactions and events recognised in the current and previous periods. Paragraph 13.4: internally generated intangibles are not recognised as assets. Paragraph 6.2 lists the four matters for the notes. Companies Act 2006, section 415(1A): no directors' report if the company qualifies as a micro-entity.

SourcesThe law·FRC

FRS 102 paragraph 1A.1: unless excluded, all the requirements of FRS 102 apply to a small entity, including the recognition and measurement requirements. Paragraph 1A.2: a small entity that does not choose the small entities regime applies FRS 102 excluding Section 1A, unless it chooses adopted IFRS or, if eligible, FRS 101. Paragraphs 1A.5 and 1A.6: the accounts must give a true and fair view, and a small entity may need disclosures beyond Section 1A to do so. Paragraph 1A.16A: as a minimum, a UK small entity gives the Appendix C disclosures when relevant. Appendix C includes the average number of employees (1AC.33), related party disclosures under FRS 102 paragraphs 33.9 and 33.14 (1AC.35), and advances and credits to directors (1AC.36). FRS 102 paragraphs 17.15 and 17.15B: an entity may measure property, plant and equipment under a revaluation model, applied to all items in the same class (a similar nature, function or use). An item is carried at a revalued amount only where its fair value can be measured reliably, and revaluations must be made with sufficient regularity that the carrying amount does not differ materially from fair value at the end of the reporting period. The Periodic Review 2024 amendments gave small entities greater clarity on which disclosures are needed for a true and fair view.

Corporation Tax Act 2009, section 46(1): the profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law.

SourcesThe law·FRC