Entitlement to the small and micro-entities regime

Small

To be entitled to apply the small companies regime, a company must meet criteria set out in the Companies Act 2006 (CA 2006).  Qualitative factors are used to establish whether a company is excluded from the small companies regime (‘ineligible’) because of its nature, or because it is a member of an ineligible group. A company will additionally need to assess whether it qualifies as small by meeting the relevant size thresholds. If a company is a parent company, it will also need to consider whether the group headed by it qualifies as small. For more information visit:

• Entitlement to the small companies regime

Micro

The steps required to establish whether a company is entitled to apply the micro-entity regime are broadly similar to those for small companies but there are further exclusions and reduced size thresholds. For more information visit:

• Entitlement to the micro-entities regime

Entities that are not companies

Similar requirements and exemptions are available to other types of entity that do not report under the Companies Act but are required or choose to prepare accounts that are intended to give a true and fair view, for example LLPs.

Simplifications available to small entities

The small companies regime allows the preparation of less detailed accounts than those required for large and medium-sized companies. An entity entitled to apply the small companies regime is not obliged to prepare accounts under this regime and can instead opt to apply either the medium or large companies regime.

Companies entitled to and choosing to apply the small companies regime are within the scope of Section 1A Small Entities of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which sets out the minimum disclosure requirements. 

There are certain simplifications that are available to all entities that are entitled to prepare accounts for the year in accordance with the small companies regime, irrespective of whether they choose to apply Section 1A of FRS 102.

There are further simplifications which are only available when a small entity applies Section 1A Small Entities.

For a more detailed analysis of the simplifications above visit:

• Small companies reporting simplifications.

Accounting and disclosure simplifications available to micro-entities

The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 set out the statutory rules on the format and the contents of micro-entity accounts (referred to as the minimum accounting items).

A company entitled to the micro-entities regime can choose to prepare a simplified balance sheet and profit and loss account with only limited disclosures, when applicable, required at the foot of the balance sheet. Accounts prepared using the micro-entities regime are presumed by CA 2006 to give a true and fair view if they include the limited disclosures required by law.

Companies entitled to and choosing to apply the micro-entities regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. 

For a more detailed analysis of the simplifications above visit:

• Simplifications for micro-entities.

As part of the Periodic Review 2024 amendments, a five-step revenue recognition model is being introduced to FRS 102. While the same model is being introduced to FRS 105, simplifications appropriate to the size and nature of micro-entities have been made. While changes to lease accounting requirements for lessees have been made in FRS 102, lease accounting remains unchanged under FRS 105.

Filing exemptions

Small

A small entity has the option not to file a copy of the profit and loss account and/or directors’ report with the Registrar of Companies. If this option is taken, the balance sheet must contain a statement that the accounts have been delivered in accordance with the provisions applicable to the small companies regime. Additionally, when the profit or loss account is not filed there is a requirement for the balance sheet to disclose this fact. For more information read:

• Small company filing 

Micro

A micro-entity has the option not to file its profit and loss account. As for a small entity, there are a number of statements required when filing the annual accounts with the Registrar of Companies. For more information read:

• Micro-entity filing

Small and micro-entity reporting compared

While FRS 105 is specifically designed for micro-entities, it is not mandatory. Entities that qualify for the micro-entities regime have the option to prepare their financial statements under either FRS 105 or FRS 102. Therefore, entities may wish to compare the two frameworks to determine which is more suitable for their reporting needs.

FRS 105 is based on FRS 102 but with significant simplifications; for example, there is no requirement to account for deferred tax and there are no options to revalue fixed assets or capitalise borrowing costs.

Notes to the accounts are not required (although some limited information must be presented at the foot of the balance sheet).

When considering which standard to apply, an entity should consider the needs of different stakeholders. The level of detail offered by FRS 105 may not always be considered sufficient.

Find out more about the key accounting differences between FRS 105 and FRS 102 and the practical considerations when choosing between the small and micro-entities regime by visiting our online guide Small and micro-entity reporting compared.

Further ICAEW resources

The following Corporate Reporting Faculty factsheets provide a comprehensive guide to the entitlement, reporting simplifications and filing requirements for small and micro-entities.

• Entitlement to the micro small medium and large companies regime
• Preparing and filing uk small entity accounts
• Preparing and filing Micro-entity accounts