FRS 105 Explained for Micro-Entities

If you're a director of a small UK limited company, you've probably heard the term "FRS 105". But what does it actually mean, and why should you care?

In plain English: FRS 105 is the accounting standard that lets very small companies prepare simpler accounts. If you qualify, it can save you time, money, and complexity.

What Is FRS 105?

FRS 105 stands for Financial Reporting Standard 105, the accounting standard specifically designed for micro-entities in the UK and Republic of Ireland.

It was introduced by the Financial Reporting Council (FRC) to give the smallest companies a simpler way to prepare their statutory accounts. Instead of following the more complex FRS 102 (used by larger companies), micro-entities can use FRS 105's streamlined requirements.

Do You Qualify as a Micro-Entity?

For accounting periods beginning on or after 6 April 2025, your company must meet at least 2 of these 3 thresholds to use FRS 105. The usual two-year size rules still apply when a company moves between size categories.

Balance sheet total means the total of all assets shown in your balance sheet before deducting liabilities.

Who Can't Use FRS 105?

Even if you meet the size thresholds, some companies are excluded:

• Public companies (PLCs)
• Companies that are part of a group preparing consolidated accounts
• Charities
• LLPs (Limited Liability Partnerships)
• Companies in certain regulated industries (banking, insurance)

What Makes FRS 105 Simpler?

1. Reduced Disclosures

Under FRS 105, your accounts need far fewer notes and explanations. You don't need to include:

• A directors' report (in most cases)
• Detailed accounting policies
• Analysis of debtors and creditors
• Post balance sheet events

Reduced disclosure does not remove required notes about advances and credit granted by the company to directors or guarantees on their behalf. Required details include amounts repaid, written off or waived. This is different from a director lending money to the company. See section 6 and Appendix A of FRS 105.

2. Simplified Balance Sheet

Micro-entity accounts use an abbreviated balance sheet format with fewer line items:

Assets:

• Fixed assets (one line)
• Current assets (one line)

Liabilities:

• Creditors due within one year
• Creditors due after one year

Equity:

• Called up share capital
• Profit and loss account reserves

That's it. No detailed breakdown required.

3. No Profit and Loss Account Required for Filing

Here's a significant benefit: micro-entities filing at Companies House don't need to include a profit and loss statement. You only need to file:

• An abbreviated balance sheet
• The required notes applicable to the company

We file the filleted copy without the profit and loss account by default. Where the publication option is shown on the filing page, you can instead choose full public accounts. That choice makes the income and expense totals public. See what company accounts are public.

4. Simpler Accounting Treatments

FRS 105 removes some complex accounting options:

• No revaluation of assets: everything stays at historical cost
• No deferred tax: you don't need to calculate or disclose it
• No fair value accounting: financial instruments are measured at cost
• Simplified lease accounting: no complex right-of-use asset calculations

FRS 105 vs FRS 102: Key Differences

What FRS 105 Doesn't Change

Using FRS 105 simplifies your accounts preparation. It does not change your tax obligations:

• You still need to file a CT600 corporation tax return with HMRC
• You still need to calculate and pay corporation tax on your profits
• You still need to keep proper accounting records
• Your filing deadlines remain the same

The accounts you prepare under FRS 105 form the basis of your CT600 return. They're just simpler to prepare.

How FRS 105 Affects Your Filing

When you file as a micro-entity:

At Companies House:

• File abbreviated accounts (balance sheet + minimal notes)
• No P&L required in the public filing
• Deadline: 9 months after accounting period end

At HMRC:

• File full accounts as part of your CT600 (including P&L)
• Accounts must be in iXBRL format
• Deadline: 12 months after accounting period end

The key point: your HMRC submission includes more detail than your Companies House filing, but both are based on the same underlying FRS 105 accounts.

Common Misconceptions

"FRS 105 means I don't need proper accounts"

Wrong. You still need to prepare full accounts internally. FRS 105 just simplifies what you need to disclose publicly and how you present them.

"Micro-entity means I don't need to file anything"

Wrong. You still have filing obligations to both Companies House and HMRC. FRS 105 makes the preparation simpler, not optional.

"I can switch between FRS 105 and FRS 102 whenever I want"

Not quite. You should apply your chosen standard consistently. If you exceed the thresholds, you'll need to transition to FRS 102, which may require restating prior year figures.

Is FRS 105 Right for You?

FRS 105 is ideal if:

• You meet the micro-entity thresholds
• Your company structure is straightforward
• You want to minimise public disclosure of financial details
• You want simpler, faster accounts preparation

Consider FRS 102 Section 1A (small company regime) if:

• You're close to the micro-entity thresholds and may exceed them
• You want to revalue assets
• You have complex financial instruments
• Stakeholders (banks, investors) want more detailed accounts

Summary

FRS 105 is the accounting standard that makes life easier for the UK's smallest companies. If you qualify as a micro-entity, you can prepare simpler accounts with fewer disclosures, saving time and potentially reducing accountancy costs.

For accounting periods beginning on or after 6 April 2025, the key thresholds are turnover of £1 million or less, a balance sheet total of £500,000 or less and 10 or fewer employees. Meet at least 2 of 3 and your company may qualify as a micro-entity.