Micro-Entity vs Small Company: Which Are You and Why Does It Matter?
Short version. Micro-entity vs small company: understand the thresholds, filing requirements, and accounting standard differences (FRS 105 vs FRS 102 Section 1A) for UK limited companies.
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UK company law defines different size categories for limited companies. The category you fall into determines your filing requirements, accounting standards and how much you need to disclose publicly.
The two most common categories for owner-managed businesses are micro-entity and small company. Here's how to tell which you are and what it means in practice.
The Size Thresholds
Micro-Entity Thresholds
For accounting periods beginning on or after 6 April 2025, your company qualifies as a micro-entity if it meets at least 2 of these 3 conditions. The usual two-year size rules still apply when a company moves between size categories:
| Criteria | Threshold |
|---|---|
| Annual turnover | Not more than £1 million |
| Balance sheet total | Not more than £500,000 |
| Average employees | Not more than 10 |
Small Company Thresholds
For financial years beginning on or after 6 April 2025, the small-company size test uses at least 2 of these 3 conditions, subject to qualification and the two-year rules:
| Criteria | Threshold |
|---|---|
| Annual turnover | Not more than £15 million |
| Balance sheet total | Not more than £7.5 million |
| Average employees | Not more than 50 |
Key Point
For earlier financial years, the limits were £10.2 million turnover and £5.1 million assets, with 50 employees. Adjust turnover for a period other than a year and check the Companies House qualification guidance, including the two-year and transition rules.
All micro-entities automatically qualify as small companies (the micro thresholds are well below the small thresholds). But not all small companies qualify as micro-entities. Think of micro-entity as a special sub-category within "small."
Filing Requirements Compared
| Requirement | Micro-Entity | Small Company |
|---|---|---|
| Accounting standard | FRS 105 | FRS 102 Section 1A |
| Balance sheet at Companies House | Abbreviated | Abbreviated (more detail) |
| P&L at Companies House | Not required in the public filing | Can be omitted from the public filing |
| Directors' report | Not required | An eligible small company can be exempt |
| Notes to accounts | Minimal (usually 1) | Several required |
| Audit required | No (if small) | No (if small) |
| CT600 to HMRC | Required | Required |
| iXBRL accounts to HMRC | Required | Required |
Accounting Standards: FRS 105 vs FRS 102 Section 1A
FRS 105 (Micro-Entities)
FRS 105 is intentionally simplified:
- Historical cost only: no revaluation of assets
- No deferred tax calculations
- No fair value accounting for financial instruments
- No detailed accounting policies disclosure
- Reduced related-party disclosures, but required director advances, credit and guarantees notes remain
- Simplified balance sheet format with fewer line items
The philosophy is: if your company is small enough, you shouldn't need complex accounting.
A company lending to a director is different from a director lending to the company. Advances and credit to directors and guarantees on their behalf need the required details, including relevant repayments, write-offs and waivers. See FRS 105 section 6 and Appendix A on the FRC website.
FRS 102 Section 1A (Small Companies)
FRS 102 Section 1A provides more options but demands more detail:
- Revaluation permitted: you can revalue property and other assets
- Deferred tax required: you must calculate and disclose timing differences
- More detailed notes: accounting policies, related parties and post-balance-sheet events
- Directors' report required: covering business review and principal activities
- More detailed balance sheet: additional line items and breakdowns
What This Means in Practice
Public Disclosure
Micro-entity: Your Companies House filing shows very little. It has an abbreviated balance sheet, with no profit figures, turnover or detailed breakdown. Your financial performance stays private.
Small company: A qualifying small company can choose not to send its profit and loss account or directors' report to Companies House. It still prepares fuller accounts and has more disclosure requirements than a micro-entity.
For directors who value financial privacy, the micro-entity regime offers a significant advantage.
Preparation Complexity
Micro-entity accounts can often be prepared in a few hours by the director themselves, especially with software. The simplified format means fewer decisions and fewer disclosure requirements.
Small company accounts typically require more time and often professional assistance. The additional disclosure requirements and accounting standard complexity make DIY preparation more challenging.
Cost
The simpler your accounts, the less they cost to prepare:
- Micro-entity: Software like SimpleCompanyTax can handle everything for £25 +VAT/year (trading) or £10 +VAT/year (dormant)
- Small company: Accountancy fees typically range from £500-£2,000+/year depending on complexity
When You Graduate from Micro to Small
If your company grows and exceeds the micro-entity thresholds, you'll need to transition to the small company regime. This happens when you fail to meet at least 2 of the 3 micro thresholds for two consecutive years.
What Changes
When you move from micro to small:
- You must adopt FRS 102 Section 1A instead of FRS 105
- Your accounts need more detailed notes and disclosures
- You may need more detailed accounts and notes
- You should check which public filing exemptions remain available
- Your first-year transition may require restating prior year comparative figures
Planning for the Transition
If you're approaching the thresholds:
- Monitor your turnover, balance sheet, and employee count annually
- Remember it takes two consecutive years of exceeding thresholds before you must change
- Consider getting professional advice for the transition year
- Your iXBRL taxonomy changes from FRS 105 to FRS 102. Make sure your filing software supports both.
Common Scenarios
"I'm a one-person consultancy billing £100k/year"
You're likely a micro-entity. Turnover well under £1 million, a minimal balance sheet and one employee or fewer are within the size limits. Check that no exclusion applies before choosing FRS 105.
"I run an e-commerce business with £500k turnover and 3 staff"
Still likely a micro-entity. You meet all three size limits. Monitor your turnover, because if it exceeds £1 million you need to check the other two conditions.
"I have a property company with assets worth £400k"
A balance sheet total of £400,000 is within the current £500,000 micro-entity limit. If turnover is under £1 million and there are 10 employees or fewer on average, the company meets all three size conditions. Check the exclusions too, especially for an investment undertaking.
"My company turned over £2 million last year"
You're a small company. Well above the micro-entity turnover threshold, but comfortably within the small company limits.
Advantages of Staying Micro
If you qualify as a micro-entity, there are good reasons to stay in this category:
- Less public disclosure: competitors and suppliers can't see your financial details
- Simpler preparation: fewer accounting decisions, fewer notes and faster filing
- Lower costs: DIY filing is realistic and professional fees are lower
- Reduced compliance risk: fewer disclosures means fewer things that can go wrong
Summary
The key differences between micro-entities and small companies are the size thresholds, the accounting standard used (FRS 105 vs FRS 102 Section 1A), and the level of disclosure required. For accounting periods beginning on or after 6 April 2025, the micro-entity size conditions are £1 million turnover, £500,000 balance sheet total and 10 employees. Meet at least 2 of 3 and check that no exclusion applies.