The Companies Act 2006 (CA 2006) sets out the criteria to determine whether an entity can take advantage of the Micro-entities Regime when preparing its annual report and accounts. An entity excluded from the small companies regime cannot be treated as a micro-entity. In addition, certain entities may be excluded from the Micro-entities Regime because of their nature, size or group considerations.

A company that is entitled to and that chooses to apply the Micro-entities Regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. As for a small company, a micro-entity will be eligible for a number of filing options.

Key steps to determine whether a company is entitled to the micro-entities regime

To be entitled to the micro-entities regime, the company must first be entitled to the small companies regime.

For more information on the eligibility criteria for the small companies regime, visit:

• Entitlement to the small companies reqime

The additional steps to determine entitlement to the micro-entities regime are as follows:

Determine eligibility by reference to qualitative criteria;

• Is the company excluded from the micro-entities regime due to the nature of its business?

Determine qualification by reference to size thresholds;

• If the micro-entity is a parent company, does the group headed by it qualify as small?
• Does the company qualify as a micro-entity by application of the size limits?

Is the company excluded from the micro-entities regime?

In addition to exclusions from the small companies regime, there are further exclusions from the micro-entities regime.

A company will be excluded from the micro-entities regime if at any time during the financial year to which the accounts relate it was:

• an investment undertaking
• a credit institution
• a financial holding undertaking
• an insurance undertaking
• a charity

A company that is not a parent but whose accounts are included in consolidated group accounts is not entitled to apply the micro-entities regime in it is individual accounts.

If the micro-entity is a parent company, does the group headed by it qualify as small?

A parent company may qualify as a micro-entity for its individual accounts only if it meets the micro-entity criteria itself and the group it heads qualifies as small. However, a parent company that prepares group accounts is not eligible to qualify as a micro-entity.

Only the group headed by the parent company seeking to take advantage of the micro-entities regime needs to be considered (ie, if the parent is itself a subsidiary, it is not necessary to consider any larger group of which it is part).

In its first financial year a group qualifies as a small group if it meets the size limits in that financial year.

In any subsequent financial year, it will qualify on what is sometimes called the two-year rolling basis. This requires the group to meet the size limits for two consecutive years to qualify as small.

Small groups – size criteria

The government has published new legislation, effective from 6 April 2025, to increase the monetary size thresholds that determine whether a group is entitled to the regimes for micro, small and medium-sized entities. The table below sets out the new size thresholds that apply for accounting periods commencing on or after 6 April 2025 alongside the previous thresholds. The size limits are met for a financial year if two out of the three of the following thresholds are met (aggregating the relevant figures for each member of the group) (CA 2006 s383);

Gross means before any consolidation adjustments and set-offs; net means after such adjustments. An entity is permitted to assess one of the limits on a gross basis and another on a net basis.

The turnover limit is adjusted proportionately if the financial year is longer or shorter than twelve months.

Balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet.

Does an individual qualify as a micro-entity by application of the size limits?

The method to determine whether an individual company qualifies as a micro-entity by reference to the size limits is the same as that set out above but with a single set of thresholds.

In its first financial year a company qualifies as a micro-entity if it meets the size limits in that financial year.

In any subsequent year, it will qualify on what is sometimes called the two-year rolling basis. This requires the company to meet the size limits for two consecutive years to qualify as a micro-entity. If the company fails to meet the size limits for two consecutive years, it will not qualify as a micro-entity in the second year.

Individual company – size criteria

As mentioned above, the government has published new legislation, effective from 6 April 2025, to increase the monetary size thresholds that determine whether a company is entitled to the regimes for micro, small and medium-sized entities. The table below sets out the new size thresholds for micro-entities that apply for accounting periods commencing on or after 6 April 2025 alongside the previous thresholds. The size limits for an individual company are met for a financial year if two out of the three of the following thresholds are met (CA 2006 s382);

The turnover limit is adjusted proportionately if the financial year is longer or shorter than twelve months.

Balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet.

Further ICAEW resources

For more in-depth analysis of the simplifications and options available to a micro entity when preparing and filing UK GAAP accounts, read the factsheet:

• Preparing and filing Micro-Entity accounts