Micro-entity size limits, short accounts and the two-year rule

Short version. A current-year size comparison is not a complete decision about micro-entity qualification. Your accounts period, previous qualification and statutory exclusions also matter.

1. Size limits

For periods starting on or after 6 April 2025, the annual limits are £1 million turnover, £500,000 total assets and 10 employees on average. The earlier monetary limits are £632,000 and £316,000. The size conditions require at least two of the three limits to be met. Total assets are not net assets after creditors.

See Companies House guidance on micro-entity accounts and exclusions. A company can be excluded even when its figures are below the limits.

2. Short and long periods

Adjust the turnover ceiling proportionately when the accounts cover a period other than a year. Do not scale the assets or employee limits. Use the whole accounts period, not each Corporation Tax return produced from a long first period.

For example, under the new limits a six-month accounts period has a £500,000 turnover ceiling. An 18-month period has a £1.5 million ceiling. The annual asset ceiling remains £500,000 in both examples.

Our illustration uses whole calendar months divided by 12, or inclusive days divided by 365 for other periods. A full calendar year keeps the annual ceiling, including a leap year. This is our proportional illustration convention, not a separate eligibility test.

Calendar months vary in length. Exactly six calendar months uses half the annual ceiling. A 183-day period that does not cover whole calendar months uses 183 divided by 365, so its illustration is slightly different.

The adjustment and qualification rules are in Companies Act 2006 section 384A.

3. The two-year rule

In the first financial year, qualification is determined from that year. In later years, meeting or ceasing to meet the size conditions changes qualification only when it happens in two consecutive years.

A company that qualified last year does not necessarily lose that status after one year above the limits. Equally, a previously non-qualifying company does not necessarily gain it after one year below them. Exclusions still apply.

For periods starting from 6 April 2025, the transition rules allow the higher thresholds to be considered for earlier years when determining qualification. See regulation 3 of the 2024 threshold regulations.

4. Using our service

We prepare FRS 105 micro-entity accounts. Our current-period comparison is informational. We do not ask you to upload evidence or reconstruct prior-year size assessments. You choose the appropriate treatment for your company. A comparison below the limits is not a guarantee that this accounts format is available to you.

General guidance only. If your company is not entitled to prepare micro-entity accounts, you need a service supporting the appropriate accounts format.