A company is a micro-entity if it meets two of these three limits in its financial year: turnover of £1 million or less, a balance sheet total of £500,000 or less, and 10 employees or fewer. A micro-entity can send Companies House a balance sheet with less information instead of a full set of accounts. Using the regime is optional, and some companies are not allowed to use it. It changes what the public sees. It does not change what HMRC needs.
This guide explains each of those terms, who is excluded, what you file, when it is due, and when it is better not to use the regime even though you qualify.
What a micro-entity is
GOV.UK describes micro-entities as very small companies. The test is simple. Your company is a micro-entity if it has any two of these:
| Measure | Micro-entity limit |
|---|---|
| Turnover (sales, before costs) | £1 million or less |
| Balance sheet total (what the company owns, as shown on its balance sheet) | £500,000 or less |
| Average number of employees | 10 or fewer |
You do not have to meet all three. Two is enough. That matters for a business with a small team but high sales, or the other way round.
The balance sheet is a snapshot of what the company owns and owes on the last day of its financial year. The financial year is the twelve-month period the accounts cover.
The limits went up in April 2025
The limits were raised for financial years starting on or after 6 April 2025. Before that, the micro-entity limits were £632,000 turnover and £316,000 on the balance sheet. The employee limit stayed at 10.
The date your financial year starts decides which limits apply. A financial year that began in March 2025 still uses the old limits, even though most of it falls after 6 April 2025.
The change moved a lot of companies. Bright Grahame Murray, a firm of chartered accountants, expected more than 100,000 small companies to be reclassified as micro-entities. If your company was "small" under the old limits, check again. You may now be a micro-entity without having done anything.
What happens if you cross a limit
A company does not usually change category the moment it crosses a line. Guidance from ANNA, a business banking provider, says you generally need to meet or exceed the relevant size conditions for two consecutive financial years before moving into a different category. So one unusually strong year does not by itself push a micro-entity into the next tier.
This is a general rule of thumb. If you are close to a limit, or your company is new, ask your accountant to check the position for your actual year.
Who cannot be a micro-entity
Meeting the size test is not enough. Buzzacott, a firm of accountants and auditors, lists the companies and LLPs that are not allowed to use the regime:
- charitable companies
- investment undertakings
- financial institutions
- subsidiaries that are fully consolidated in group accounts
- parent companies that prepare group accounts
A subsidiary is a company controlled by another company. A parent company is the one doing the controlling. Group accounts combine the figures of a parent and its subsidiaries into one set.
Limited liability partnerships (LLPs) can use the regime too. They must meet the same size tests and must not be part of a group or carry out ineligible business activities.
The list above is the one we can point to. If your company is unusual, for example if it is a member of a group, holds investments for others or has a regulated activity, check eligibility with your accountant before you decide.
Using the regime is a choice
Qualifying does not oblige you to use it. A company that meets the micro-entity tests can still prepare small company accounts instead. ANNA notes that some directors choose this to show more detail, for example to reassure lenders or investors.
GOV.UK defines a small company as one with any two of: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and 50 employees or fewer. So a micro-entity is also small. It can pick either route.
What you prepare, and what Companies House receives
Two different audiences get two different sets of figures.
Companies House is the public register. Anything you file there can be read by anyone. For a micro-entity, GOV.UK says you can prepare simpler accounts that meet the statutory minimum requirements and send only your balance sheet, with less information, to Companies House. Buzzacott puts it the same way: only the balance sheet and a few notes are filed.
The practical result, as ANNA describes it, is that the public record shows assets, liabilities and shareholders' funds, but generally leaves out turnover and profit. Competitors cannot see how well you trade.
HMRC is different. GOV.UK says that micro-entities and small companies must still send statutory accounts to their members (the shareholders) and to HMRC as part of the Company Tax Return. The profit and loss account is part of that. A profit and loss account shows sales, costs and the resulting profit or loss for the year.
So you still prepare it. You just do not have to publish it.
The accounting standard
Micro-entity accounts are normally prepared under FRS 105, the Financial Reporting Standard applicable to the Micro-entities Regime. It is the part of UK accounting rules written for micro-entities. It has fewer options than FRS 102, the standard used by larger small companies, and the balance sheet follows the layout FRS 105 requires.
Leaving the profit and loss account off the public record
ANNA explains that under section 444 of the Companies Act 2006 a company can choose not to file its profit and loss account with Companies House, even though it still prepares one for its own records and for HMRC. This is sometimes called filing "filleted" accounts. If you do this, the balance sheet needs a statement confirming that the accounts were delivered in line with the small companies regime.
The statement about audit
Most micro-entities do not need an audit. If you rely on that exemption, ANNA says the balance sheet needs a statement that the directors consider the company entitled to audit exemption under section 477 of the Companies Act 2006, and that the members have not required an audit.
GOV.UK also requires that the balance sheet carries the name of a director and is signed by a director. Check that your accounts software or accountant has done both before you file.
Notes still matter
A short balance sheet does not mean no disclosures. ANNA points out that you should check for items that belong in the notes, such as directors' loans, guarantees and certain financial commitments. Keep a running record of these during the year so they are not missed.
Deadlines and penalties
For most private limited companies, the deadline to file accounts at Companies House is nine months after the end of the financial year. For a company's first accounts, you usually have 21 months from the date it was incorporated.
Companies House charges an automatic penalty for late filing. ANNA sets out the scale:
| How late the accounts are | Penalty |
|---|---|
| Up to 1 month | £150 |
| More than 1 month, up to 3 months | £375 |
| More than 3 months, up to 6 months | £750 |
| More than 6 months | £1,500 |
If you are late two years running, the penalty for the second year is doubled. The penalties apply whether the company is trading or dormant.
A few points we would stress:
- Submitting is not the same as filing. If Companies House rejects your accounts because of missing information or formatting problems, you must correct and resubmit before the deadline. Keep the confirmation you receive.
- Companies House and HMRC have separate deadlines. Filing on time at one does not protect you at the other.
- Companies House's rules on what accounts must contain have been changing. Before you file, check the current Companies House guidance for your financial year rather than relying on last year's filing.
A worked example
Take a company with a financial year running from 1 May 2025 to 30 April 2026. That year started after 6 April 2025, so the new limits apply.
Its figures:
- Turnover: £800,000
- Balance sheet total: £400,000
- Average employees: 12
The company meets the turnover limit (£800,000 is under £1 million). It meets the balance sheet limit (£400,000 is under £500,000). It misses the employee limit (12 is over 10). That is two out of three, so it is a micro-entity.
Now change one number. Say turnover was £1.2 million, the balance sheet total was £400,000 and there were 8 employees. Turnover misses, but the balance sheet and employees are within the limits. Still two out of three. Still a micro-entity.
If both turnover and the balance sheet were over their limits, and employees were under, only one test would be met and the company would not be a micro-entity that year.
Under the old limits, the first company would have failed. Turnover of £800,000 was over the old £632,000 limit, and the balance sheet of £400,000 was over the old £316,000 limit. Only the employee test would have been close, and at 12 employees it would have failed too. The change in April 2025 is what brings a company like this into the regime.
What this company does next:
- Prepares a full set of accounts, including the profit and loss account, because HMRC needs it.
- Prepares a micro-entity balance sheet and notes under FRS 105 for Companies House.
- Includes the audit exemption statement, and has a director sign the balance sheet.
- Files by 31 January 2027, nine months after year end.
- Files the Company Tax Return with HMRC, with its own deadline and its own penalties.
Should you use it? The trade-offs
The regime is simpler, but simpler is not always better.
What you gain
- Less public information. The public cannot see your turnover or profit.
- Less to prepare and fewer disclosures than small company accounts.
- Some useful simplifications. Buzzacott points out that micro-entities can carry investment property at cost less impairment rather than at fair value. For a property investment company with low turnover and few staff, that can save the cost of regular valuations.
What you give up
- Fewer accounting choices. Under FRS 105 you generally cannot revalue assets to reflect a rise in market value, as you can under FRS 102. Buzzacott gives the same example for fixed assets. If you own property or investments that have risen a lot in value, your balance sheet may undersell the company.
- Less useful accounts for other people. Buzzacott says micro accounts do not contain much information and may not be much use if you want to give them to stakeholders. Small company accounts are more informative.
- Lenders. Bright Grahame Murray notes that lenders may require more detailed information to assess creditworthiness. If you expect to borrow, ask the lender what it wants before you pick the regime.
- Audit. Buzzacott says micro accounts are generally not recommended if you want an audit.
Tax
Buzzacott warns that choosing micro-entity accounts can change your profit if the accounting policies differ from those under FRS 102, which can change the corporation tax due. Many differences have no tax effect. For an investment property company, gains from recognising property at fair value are not taxable until the property is sold, so using FRS 105 makes no difference to the tax payable.
If you are unsure, ask your accountant to compare your profit under both standards before you switch. Our guide to corporation tax rates in 2026 explains how the rates apply once you have a profit figure.
For growing companies, Bright Grahame Murray makes a sensible point. Even if the higher limits allow a step down, it can be better to keep your current reporting rather than disrupt your systems for a change that may only last a year or two.
What you still have to do, whatever you file
Choosing micro-entity accounts shortens the Companies House filing. It does not remove other duties.
- Company Tax Return. HMRC gets statutory accounts as part of the return. The figures used must be consistent with the accounts you file at Companies House.
- Corporation Tax. Calculate it before you finalise the accounts, because the tax charge can affect the balance sheet. It has its own payment deadline and its own penalties and interest.
- Confirmation statement. This is a separate annual filing, not part of your accounts. See our guide to the confirmation statement (CS01).
- Identity verification. Companies House is bringing in identity checks for directors and people with significant control. Our page on Companies House identity checks for directors covers what that means for you.
- Bookkeeping. ANNA makes the point that the hard part is keeping accurate records through the year, not the filing itself. Reconcile sales, expenses, asset purchases and bank transactions, and make the year-end adjustments for depreciation, accruals and prepayments.
Directors can prepare and file their own micro-entity accounts for a simple company. If the company has complex arrangements, such as unusual share structures, group transactions or significant investments, have an accountant review the accounts first.
If your company is a contractor's limited company and you want help with accounts and tax, see our page on accounts and tax for contractor limited companies.
Frequently Asked Questions
Do I have to use micro-entity accounts if I qualify?
No. It is optional. You can prepare small company accounts under FRS 102 instead, which some directors prefer when lenders or investors want more detail.
Can a charity use micro-entity accounts?
Charitable companies are on the list of entities not allowed to use the regime. Other rules govern charity accounts, so check with your accountant or the charity regulator.
Can I leave the profit and loss account out of what I file?
Yes. Under section 444 of the Companies Act 2006 you can choose not to file it at Companies House. You still prepare it for your own records and for HMRC, and the balance sheet needs a statement about delivery under the small companies regime.
Does my company need an audit?
Not if you claim audit exemption, which most micro-entities do. The balance sheet needs the statement that the directors consider the company entitled to exemption under section 477 of the Companies Act 2006, and that members have not required an audit.
What if my company did nothing this year?
If the company had no significant accounting transactions during the year, it may count as dormant rather than a micro-entity, and can file dormant company accounts, which contain even less detail. GOV.UK says filing fees, late filing penalties and money paid for shares on incorporation do not count as significant transactions.