Definition
A micro-entity is the smallest category of UK company under company law. For financial years starting on or after 6 April 2025, a company qualifies if it meets at least two of three limits: turnover of £1 million or less, a balance sheet total of £500,000 or less, and 10 or fewer employees on average. Qualifying companies can prepare simplified micro-entity accounts.
The two-year rule
A new company qualifies in its first financial year if it meets the limits in that year. After that, it normally has to meet them in two consecutive years to change status, so going over the limits for one year alone does not stop it being a micro-entity. The full test is set out in micro-entity thresholds for 2026.
What counts as the balance sheet total
The balance sheet total is the company’s fixed assets and current assets added together, before deducting anything it owes. A company with £420,000 of property and £90,000 in the bank has a balance sheet total of £510,000, over the £500,000 limit even if it has a large mortgage. It can still qualify on the turnover and employee limits.
Companies that cannot qualify
Some companies are excluded however small they are, including charitable companies, public companies, investment undertakings, financial institutions and parent companies that prepare group accounts.
SmartFiling works as an accountant for micro-entity companies, preparing their accounts and CT600s.
Related questions
- Is a micro-entity also a small company? Yes, so it can also claim small company exemptions such as audit exemption.
- Were the limits lower before April 2025? Yes, for earlier financial years the limits were £632,000 turnover and a £316,000 balance sheet total.
Related terms
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Micro-entity accounts
Micro-entity accounts are the simplified annual accounts that a company qualifying as a micro-entity can prepare under the accounting standard FRS 105.
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FRS 105
FRS 105 is the UK accounting standard for companies that use the micro-entities regime.
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Small company accounts
Small company accounts are annual accounts prepared under the small companies regime, normally using the accounting standard FRS 102 Section 1A.
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Annual accounts
Annual accounts, also called statutory accounts, are the financial statements a UK limited company prepares at the end of each financial year.
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