Micro-Entity vs Small Company: Which Are You and Why Does It Matter?

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:

Small Company Thresholds

Your company qualifies as a small company if it meets at least 2 of these 3 conditions:

Key Point

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

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
• No related party disclosures
• Simplified balance sheet format with fewer line items

The philosophy is: if your company is small enough, you shouldn't need complex accounting.

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/year (trading) or £10/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:

1. You must adopt FRS 102 Section 1A instead of FRS 105
2. Your accounts need more detailed notes and disclosures
3. You may need more detailed accounts and notes
4. You should check which public filing exemptions remain available
5. 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:

1. Less public disclosure: competitors and suppliers can't see your financial details
2. Simpler preparation: fewer accounting decisions, fewer notes and faster filing
3. Lower costs: DIY filing is realistic and professional fees are lower
4. 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.