FRS 105 lets the smallest UK companies produce the shortest legally valid accounts available — often two or three pages: a balance sheet, four notes at the foot of it, and a director’s signature.
It does that by removing choices rather than adding them. Almost everything that makes accounts complicated — revaluation, fair value, deferred tax, capitalising development costs — is not simplified under FRS 105. It is banned.
Here is what the standard requires, what it forbids, and the one rule misstated in most published guidance.
What FRS 105 is
FRS 105 is The Financial Reporting Standard applicable to the Micro-entities Regime, issued by the Financial Reporting Council. It sits alongside FRS 102, used by small and medium companies. Three things define it:
It is optional. Qualifying gives you the right to use FRS 105, not the obligation. You can prepare small company accounts under FRS 102 Section 1A instead.
It is all or nothing. If you opt in, you apply FRS 105 in full. You cannot borrow a treatment from FRS 102 because you prefer the outcome.
It is legally underwritten. Sections 396(2A) and 396(6) of the Companies Act 2006 presume micro-entity minimum accounting items give a true and fair view, and require directors and auditors to disregard accounting standard provisions calling for more. That presumption makes the short format safe rather than a corner cut.
The FRC’s Periodic Review 2024 amendments take effect for periods beginning on or after 1 January 2026.
Who can use it
Meet at least two of three conditions, for financial years beginning on or after 6 April 2025: turnover not more than £1 million, balance sheet total not more than £500,000, not more than 10 employees. Balance sheet total means total assets, not net assets.
And you have to meet them two years running. A company qualifies in its first financial year on that year alone; in any later year it must meet the conditions in that year and the year before, under section 384A(3) of the Companies Act 2006.
Some companies are excluded whatever their size: PLCs, charities, financial institutions and companies inside a group that prepares consolidated accounts.
The Section C balance sheet formats
Micro-entities do not design a balance sheet. They pick one of two statutory formats in Section C of Part 1 of Schedule 1 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008.
Format 1 is the vertical presentation almost everyone uses:
| Line item | |
|---|---|
| A | Called up share capital not paid |
| B | Fixed assets |
| C | Current assets |
| D | Prepayments and accrued income |
| E | Creditors: amounts falling due within one year |
| F | Net current assets (liabilities) |
| G | Total assets less current liabilities |
| H | Creditors: amounts falling due after more than one year |
| I | Provisions for liabilities |
| J | Accruals and deferred income |
| K | Capital and reserves |
Format 2 splits the same information in two:
| Section | Line item |
|---|---|
| Assets | A Called up share capital not paid |
| B Fixed assets | |
| C Current assets | |
| D Prepayments and accrued income | |
| Capital, reserves and liabilities | A Capital and reserves |
| B Provisions for liabilities | |
| C Creditors | |
| D Accruals and deferred income |
Under Format 2, amounts falling due within and after one year are shown separately within Creditors.
Those are the only items that must appear. “Fixed assets” is one line, with no split between intangible, tangible and investments. “Current assets” is one line, with no separate stock, debtors and cash. That is why a micro-entity balance sheet reveals so little.
You must keep the same format year to year unless the directors consider there are special reasons to change. Switching for presentational convenience is not permitted.
The micro-entity profit and loss format
Micro-entities do not currently file a profit and loss account, but they still prepare one — and it has a statutory format of its own, also in Section C:
| Line item | |
|---|---|
| A | Turnover |
| B | Other income |
| C | Cost of raw materials and consumables |
| D | Staff costs |
| E | Depreciation and other amounts written off assets |
| F | Other charges |
| G | Tax |
| H | Profit or loss |
Eight lines, against the multi-page profit and loss account a medium-sized company produces.
The four notes
FRS 105 requires exactly four disclosures, at the foot of the balance sheet rather than in a separate notes section:
- Off-balance-sheet arrangements — nature, business purpose and financial effect
- Average number of employees during the financial year
- Advances, credit and guarantees granted to directors
- Financial commitments, guarantees and contingencies not included in the balance sheet
There is also a mandatory statement immediately above the director’s signature, confirming the accounts are prepared under the micro-entity provisions. One line, not optional, and leaving it out is among the most common reasons self-filed accounts get rejected.
What FRS 105 prohibits
| Prohibited | What it means in practice |
|---|---|
| Revaluation and the alternative accounting rules | Everything sits at historical cost less depreciation less impairment |
| Investment property at fair value | Held at cost less depreciation less impairment, however much it has appreciated |
| Fair value accounting generally | Including derivatives and other financial instruments |
| Deferred tax | Expressly prohibited by paragraph 24.7. A micro-entity shall not recognise deferred tax |
| Capitalising borrowing costs | Expensed as incurred, with no policy choice |
| Capitalising development costs | Expensed as incurred. No internally generated intangibles |
| Equity accounting | For subsidiaries, associates and joint ventures |
| Consolidated accounts | A micro-entity cannot prepare group accounts |
| Separate recognition of intangibles on acquisition | They stay within goodwill |
| Reversing a goodwill impairment | Once written down, it stays down |
| Adapted or IFRS-style formats | Section C or nothing |
Where these bite. A company holding property bought in 2014 shows what it paid, not what it is worth. A company investing in product development shows the spend as cost, not as an asset. If you are raising finance or preparing to sell, the numbers a lender sees will understate the business.
Goodwill, and the 10-year rule that is not a rule
This one is stated wrongly almost everywhere, so it is worth being precise.
Goodwill and intangible assets have a finite useful life and must be amortised over it. You estimate that life and write the asset off across it. If the useful life is four years, you amortise over four years.
The 10-year figure is a cap for exceptional cases only. Where — and only where — an entity genuinely cannot make a reliable estimate of useful life, the period used must not exceed ten years.
It is not a default or a standard period. It is a ceiling for the exceptional case in which estimation fails. Guidance saying “goodwill is amortised over 10 years under FRS 105” has it backwards, and following it when a reliable estimate is available produces non-compliant accounts.
What you do not have to prepare
Under FRS 105 there is no requirement for a directors’ report, a strategic report, a statement of cash flows, a statement of changes in equity, an accounting policies note, a related party transactions note or a directors’ remuneration note.
That absence is the entire cost advantage of the regime: fewer disclosures, fewer schedules, fewer hours.
What changes in April 2028
From April 2028, micro-entities must file a profit and loss account alongside the balance sheet, plus an auditor’s report unless exempt. Abridged accounts are abolished and all accounts must be filed via commercial software in iXBRL. Small and micro companies can opt out of publishing the P&L on the register — Companies House, HMRC and law enforcement keep access, competitors and credit agencies do not.
Note the date. This package was originally announced for April 2027 and confirmed as April 2028 on 9 June 2026. Most published guidance still shows 2027.
Frequently asked questions
Is FRS 105 compulsory if my company qualifies as a micro-entity?
No. It is optional. You can prepare small company accounts under FRS 102 Section 1A instead. If you do opt into FRS 105, you must apply it in full and cannot mix in treatments from FRS 102.
Can I revalue property under FRS 105?
No. FRS 105 disapplies the alternative accounting rules entirely. All assets, including investment property, are carried at cost less depreciation less impairment.
Is goodwill always amortised over 10 years under FRS 105?
No, and this is widely misstated. Goodwill is amortised over its estimated useful life. Ten years is a maximum that applies only in exceptional cases where a reliable estimate of useful life cannot be made.
Does FRS 105 require deferred tax?
The opposite. FRS 105 expressly prohibits it. A micro-entity shall not recognise deferred tax assets or liabilities.
How many notes does a micro-entity balance sheet need?
Four, presented at the foot of the balance sheet: off-balance-sheet arrangements, average employee numbers, advances and credit granted to directors, and financial commitments, guarantees and contingencies. Plus the micro-entity statement above the director’s signature.
Getting FRS 105 accounts prepared properly
FRS 105 looks simple because the output is short. The judgement sits in what you are not allowed to do — and accounts that quietly include deferred tax, a revalued asset or a default ten-year goodwill write-off do not comply, however tidy they look.
SmartFiling prepares and files micro-entity accounts from £299, covering FRS 105 accounts, the CT600, iXBRL tagging and submission to both Companies House and HMRC. Every filing is reviewed and signed off by an ICAEW Chartered Accountant.
