Small and micro-entity reporting - choosing the right regime
Companies and other entities may choose to prepare and file their accounts in accordance with the small companies regime or the micro-entities regime, subject to meeting the relevant criteria. On this page the Financial Reporting Faculty provides an overview of the criteria to be met, the requirements and simplifications available, and some practical considerations to help you choose the right financial reporting regime for your circumstances.
Eligibility criteria for the small and micro-entities regime
SmallTo qualify for the small companies regime the company must meet the criteria set out in the Companies Act 2006 (CA 2006). Certain types of company are excluded from the regime, for example banks and public companies, and companies that are part of an ineligible group. The provisions also set out the size criteria that need to be met. If the company is a parent company, it will also need to consider whether the group headed by it qualifies as small.
MicroThe steps required to establish whether a company is eligible to qualify as a micro-entity are broadly similar to those for small companies but there are further exclusions and reduced thresholds.
Entities that are not companiesSimilar 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
An entity that meets the criteria may choose to apply the small companies regime, ie this is optional. Most small UK entities apply FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland when preparing their accounts. FRS 102 includes a section, Section 1A Small Entities, for those entities qualifying and choosing to apply the small companies regime.
Simplifications available to all entities that qualify for the small companies regime
There are certain simplifications that are available to all small entities, irrespective of whether they choose to apply Section 1A of FRS 102 (see below).
The key simplifications are:
- Strategic report – a small company is not required to prepare a strategic report.
- Directors’ report – a small company is exempt from presenting certain information in the directors’ report.
- Group accounts – A parent company that qualifies as small is generally exempt from the requirement to prepare group accounts.
- Cash flow statement – a small entity is not required to prepare a statement of cash flows and the accompanying notes.
- Filing of accounts – a small company has the option not to file a copy of the profit and loss account and/or directors’ report with the Registrar of Companies.
- Directors’ loans – small entities have the option to measure a loan from a director, or a directors’ group of close family members, initially at transaction price, provided that group contains at least one shareholder in the entity.
Simplifications available only when applying FRS 102 Section1A
There are further simplifications which are only available when the a small entity applies Section 1A Small Entities:
- Abridged accounts – a small entity has the option to prepare an abridged balance sheet and/or abridged profit or loss account.
- Other primary statements – a small entity is not required to prepare:
- a statement of comprehensive income; and/or
- a statement of changes in equity or a statement of income and retained earnings.
- Fewer mandated disclosures – Section 1A’s disclosure requirements reflect those mandated by company law. These are fewer than the disclosures required by ‘full’ FRS 102. However, the accounts must still give a true and fair view.
For a more detailed analysis of the simplifications outlined above visit Small companies reporting – simplifications (Financial Reporting Faculty members only).
For a comprehensive guide to the simplifications and requirements for entities qualifying for the small entities regime read the Financial Reporting Faculty’s factsheet Preparing and filing UK small entity accounts (Financial Reporting Faculty members only).
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).
Accounting and disclosure simplifications available to micro-entities
FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime applies to micro-entities that qualify for and choose to apply the micro-entities regime.
For a more detailed analysis of the simplifications available to micro-entities visit Micro-entity reporting – simplifications (Financial Reporting Faculty members only).
Filing requirements for micro-entities
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.
Small and micro-entity reporting compared
FRS 102 is the key standard applied by most entities in the UK; small entities reporting are entitled to some simplifications as outlined above.
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).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 (Financial Reporting Faculty members only).