If you run a small limited company in the UK, you might qualify as a micro entity — the smallest company category recognised under UK law. Micro entity status means simpler accounting rules, stripped-down accounts and less paperwork, so you spend less time on compliance and more time running your business.
Whether you qualify comes down to three size limits: annual turnover, balance sheet total and average number of employees. Meet at least two out of three for two consecutive years, and you can prepare your accounts under the simplified FRS 105 standard. If you’re new to the concept, start with our guide on what are micro entity accounts before checking the limits below.
Worth knowing: the limits rose on 6 April 2025 to £1 million turnover and £500,000 balance sheet total (employees unchanged at 10). If your accounting period began before that date, the older limits (£632,000 and £316,000) apply to that period.
From Paperwork to Peace of Mind – Trust Micro Entity Accounts.
What Counts as a Micro Company in the UK?
Your company qualifies as a micro entity if it meets at least two of these three conditions in a financial year:
- Annual turnover of £1 million or less
- Balance sheet total of £500,000 or less (the gross value of your company’s assets — cash, money owed by customers, equipment, stock — not profits or net worth)
- 10 employees or fewer on average across the year
You only need two of the three — not all three. A consultancy turning over £900,000 with 4 staff qualifies even if its balance sheet is higher, and a company with £1.4 million turnover but a £300,000 balance sheet and 6 employees still qualifies. You’ll need to meet the conditions for two consecutive financial years before the status is confirmed, but a brand-new company can qualify in its first year if it meets the conditions in that year.
One detail that catches people out: if your first accounting period is shorter than 12 months, Companies House annualises your turnover when checking the threshold — a £600,000 turnover in a 6-month period counts as £1.2 million annualised, which would take you over the limit. Preparing your micro entity accounts correctly starts with getting the qualifying tests right.
Who Cannot Be a Micro Entity?
Even if you meet the size limits, certain companies are automatically excluded. You cannot be a micro entity if your company is:
- A public limited company (PLC)
- Part of a group of companies, unless the whole group qualifies as small
- An authorised insurance company or carrying on insurance market activity
- Involved in banking or financial services
- A charitable company
Most ordinary small businesses won’t fall into these excluded categories, so if you run a straightforward trading business, service company or consultancy — including property investment vehicles like the ones covered in our guide to micro entities for SPVs — you’re likely fine.
What Do You Actually File Under FRS 105?
FRS 105 micro entity accounts are the simplest statutory accounts a UK company can file. A complete set filed with Companies House consists of:
- A simplified balance sheet, signed by a director and dated, with a statement confirming you’ve taken the micro-entity provisions
- Minimal notes covering accounting policies, share capital, advances and credits to directors, and commitments, guarantees or contingent liabilities
Crucially, micro entities are exempt from preparing a directors’ report, and the profit and loss account is not filed publicly — competitors, customers and suppliers can’t see your turnover or profit margins. A full P&L is still prepared for the company’s members and for HMRC with the Company Tax Return, but it stays off the public register. FRS 105 also keeps things simple by prohibiting fair-value and revaluation accounting, so there are fewer judgement calls to get wrong.
When it’s time to submit, see how to file micro entity accounts for the step-by-step process.
What Qualifies as a Microbusiness?
“Microbusiness” and “micro entity” aren’t quite the same thing, though people often use them interchangeably. A microbusiness is a broader term for any very small business — limited company, sole trader or partnership — while a micro entity is specifically a limited company that meets the thresholds above and files accounts under FRS 105. If you’re a sole trader or partnership, you don’t file accounts with Companies House at all, so the micro entity rules don’t apply to you — though you might still be called a microbusiness in general conversation.
Does Being a Microbusiness Affect Your Taxes?
No — your accounts format doesn’t change your tax bill. Micro entity status simplifies what you disclose, not how much Corporation Tax you pay. For the financial year beginning 1 April 2026, taxable profits up to £50,000 are taxed at the 19% small profits rate, profits over £250,000 pay the 25% main rate, and marginal relief tapers the rate in between. The real saving from micro entity accounts is in accountancy fees and your own time, not tax. For the detail, read our guide to Corporation Tax rates for micro entities.
What Does “Micro Company Limited” Mean in Practice?
The limits are straightforward numbers, but they’re worth understanding in practice:
- Turnover is measured before costs. If you invoice £700,000 but your actual profit is tiny because of high costs, you’re still assessed on the £700,000. This catches some people out.
- Balance sheet total is about what you own, not what you earn. Your company might have low turnover but own valuable equipment or property that pushes the balance sheet over £500,000. Equally, you might turn over £900,000 but rent everything and keep minimal cash in the bank, staying under the limit.
- The 10-employee test counts everyone — full-time, part-time, permanent and temporary — as an average across the year. If you have 12 people for two months during a busy period but 8 for the rest of the year, you’d average around 8.7 and still qualify.
Choosing the right annual accounts format for your size matters — if you’re unsure where you stand, an accountant can run the tests in minutes. Many owners also find our guide on choosing an accountant for a small business helpful when shopping for fixed-fee support.
What Happens If You Grow Beyond Micro Entity Status?
If you exceed two of the three thresholds for two consecutive years, you’ll need to prepare small company accounts instead. This isn’t a disaster — small company accounts are still far simpler than full accounts, and you can still fillet the P&L from the public filing. Some growing businesses voluntarily prepare fuller accounts anyway because a bank wants more detail for a loan application, or directors want better management information for decision-making.
Do You Need to Tell Anyone You’re a Micro Entity?
You don’t register or apply anywhere — it’s automatic. If you meet the conditions, you simply prepare your accounts under FRS 105, and when filing with Companies House you indicate you’re filing micro entity accounts. Keep records that prove you meet the thresholds, though: HMRC or Companies House can ask you to evidence your turnover, balance sheet total and employee numbers if they query your filing.
Should You Always Use Micro Entity Accounts If You Qualify?
In most cases, yes — it saves time and money. But consider fuller accounts if:
- Your bank has asked for detailed financial information as part of a loan agreement
- You’re trying to sell the business or attract investors who want fuller disclosure
- You have complex transactions or want detailed management information for yourself
From Paperwork to Peace of Mind – Trust Micro Entity Accounts.
FAQs: Who Qualifies as a Micro Entity in the UK?
When did the micro entity thresholds change?
The current limits (£1 million turnover, £500,000 balance sheet, 10 employees) apply to accounting periods beginning on or after 6 April 2025, under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024. Earlier periods use the old limits of £632,000 turnover and £316,000 balance sheet. Always check which period your filing covers.
Can You Switch Between Micro Entity and Small Company Accounts?
Yes. You can move up to small company accounts whenever you want, and drop back down to micro entity accounts if you meet the thresholds again for two consecutive years. There’s no penalty for changing.
Does Micro Entity Status Affect Your Corporation Tax Return?
No. Your Company Tax Return (CT600) to HMRC is completely separate from your statutory accounts filed with Companies House. You still need to file the CT600 with detailed computations within 12 months of your accounting period end, regardless of whether you file micro entity accounts.
What If You’re Right on the Borderline?
You need to exceed two out of three limits for two years before you lose micro entity status — one year slightly over doesn’t immediately change anything. But plan ahead: if you know you’re growing, start preparing fuller accounts early to avoid a sudden jump in your reporting.
The micro entity rules exist to make life easier for Britain’s smallest companies. If you qualify, take advantage of the simpler reporting — and if you’d like help getting your accounts prepared and filed correctly, our team prepares micro entity accounts for a fixed fee. Call +44 20 3441 1258 or get in touch for a quote.
Last reviewed: 20 October 2026
