All companies registered in the UK are required to file annual accounts. Accounts are a company’s financial reports for a specific accounting period. However, there are different reporting requirements depending on the company size, and the rules for micro-entity accounts are considerably different from those for larger organisations.
This post covers what you need to know about micro-entity accounts, including which types of companies qualify as micro-entities, what their accounts must include, and how and when to file them.
What is a micro-entity?
First, let’s clarify exactly what a micro-entity is and how to determine whether your business is one. The Companies Act 2006, the primary law that governs UK businesses, classifies different company sizes based on thresholds for annual turnover, balance sheet total, and the average number of employees.
To be classed as a micro-entity, a company (or limited liability partnership) must meet at least two of the following conditions:
- Annual turnover must be no more than £632,000
- The balance sheet total must not exceed £316,000
- The average number of employees is not more than 10
Generally, a new company qualifies as a micro-entity in its very first financial year if it satisfies the conditions in that particular year. In subsequent years, the company must meet the qualifying conditions in that year and the one immediately before.
Companies that do not meet the qualifying criteria for micro-entities are classified as small, medium-sized, or large.
How to prepare micro-entity accounts
Most micro-entities can prepare simplified accounts for Companies House. These contain less information than the accounts for small, medium-sized, and large companies. Here’s what micro-entity accounts must include:
- A simplified balance sheet with a director’s signature and printed name, along with any footnotes
- A simplified profit and loss account (optional)
- An auditors’ report (unless the company claims exemption from audit as a small company)
- Supporting notes to the account
Your balance sheet must also include the following statement: “These accounts have been prepared in accordance with micro-entity provisions.” It should appear above the director’s printed name and signature, and must also be included in your profit and loss account (if applicable).
Please note that, as per section 415 of the Companies Act 2006, micro-entities do not need to prepare a directors’ report as part of their annual accounts.
It’s also important to mention that micro-entities can file small company accounts rather than micro-entity accounts.
If your company qualifies as a micro-entity and you choose to file micro-entity accounts, they must be prepared in accordance with FRS 105, the Financial Reporting Standard that applies to the Micro‑entities Regime.
If you choose to prepare and file small company accounts instead, they are subject to FRS 102 reporting standards.
Companies prohibited from preparing and filing micro-entity accounts
The following types of companies are prohibited under legislation from filing micro-entity accounts with Companies House:
- Charitable companies
- Public limited companies (PLCs)
- Unregistered companies
- Limited partnerships
- Qualifying partnerships (as defined under the Partnership (Accounts) Regulations 2008)
- Overseas companies
- Companies authorised to register under section 1040 of the Companies Act 2006
- Companies excluded under section 384 or 384B of the Companies Act 2006
Reporting exemptions
Under the Small Companies (Micro Entities’ Accounts) Regulations 2013, small companies and micro-entities (including LLPs) can benefit from exemptions from audits and the requirement to file a directors’ report or profit and loss account with Companies House.
To qualify for exemption as a small company, a company must meet any two of the following criteria:
- Annual turnover must be no more than £10.2 million
- The balance sheet total must be no more than £5.1 million
- The average number of employees must be no more than 50
Companies qualifying as micro-entities automatically qualify as small companies (even though the thresholds are different). This means that micro-entities can also take advantage of the exemptions.
However, some businesses are excluded from micro-entity provisions and cannot apply for these exemptions. They include:
- Public limited companies (unless they are dormant)
- Authorised insurance companies
- Firms carrying out insurance market activity
- Companies involved in banking
- Issuers of electronic money (e-money)
- Markets in Financial Instruments Directive (MiFID) investment firms
- Undertakings for Collective Investment in Transferable Securities (UCITS) management companies
- Funders of master trust pensions schemes
- Special register bodies
- Pensions or labour relations bodies
- Parent companies or subsidiary companies (unless they still qualify for audit exemption under other criteria)
What if my company is dormant?
If your micro-entity is not trading and has no other income (e.g., investments), it may be classed as dormant. In this situation, you may be able to file dormant accounts with Companies House rather than micro-entity or small company accounts.
According to Companies House, your company is dormant if it has had no ‘significant’ accounting transactions in its financial year. Significant transactions do not include:
- filing fees you’ve paid to Companies House
- penalties imposed for the late filing of accounts
- money the company received for shares issued during incorporation
Dormant company accounts are even simpler and only need to include:
- a balance sheet with statements above the director’s signature and printed name to the effect that ‘the company was dormant throughout the accounting period’
- any previous year’s figures for comparison (even though there is no income for the current year)
- supporting notes to the balance sheet
However, if your dormant micro-entity is limited by shares, has never traded since its formation, and the only transaction entered in its accounting records is the issue of shares during incorporation, you can submit dormant accounts on Companies House form AA02.
At Rapid Formations, we offer a Dormant Company Accounts Service for £49.99. Simply provide us with a few details about your company and one of our experts will file dormant accounts with Companies House on your behalf.
Dormant company exemptions
Dormant companies are exempt from audit if they’ve been dormant since their incorporation, or if they’ve been dormant since the end of the previous financial year and satisfy the following conditions:
- they are entitled to prepare individual accounts in accordance with the small companies regime
- they are not required to prepare group accounts
- they qualify as a ‘small company’ (this includes micro-entities) in relation to that year, or would have qualified as small if it weren’t for the fact that it’s a public company or member of an ineligible group
Under certain circumstances, dormant companies that are subsidiaries can claim exemption from preparing accounts, filing accounts with Companies House, or both.
The right to prepare dormant company accounts does not affect the company’s duty to prepare full annual accounts for its members. Further, you must continue to file a confirmation statement at Companies House each year.
Dormant company requirements for HMRC
Your micro-entity company may also be dormant for Corporation Tax if it:
- is a new limited company that hasn’t started trading
- has ceased trading after after a period of activity and has no other income
- is an unincorporated association or club owing less than £100 of Corporation Tax
- is a flat management company
In these situations, you should tell HMRC that your company is dormant for Corporation Tax purposes. By doing so, you won’t be required to file a Company Tax Return or full (statutory) annual accounts with HMRC unless you receive a further notice to deliver a Company Tax Return or your company starts trading again.
Submitting micro-entity accounts
So, who is responsible for filing annual accounts, where should they be delivered, and what are the key deadlines you need to know?
1. Who is responsible for submitting the accounts?
Limited company directors are responsible for keeping accurate accounting records at all times and filing the correct accounts at the end of the company’s financial year. This applies to all registered companies in the UK, regardless of their size.
Even though micro-entities can file simplified accounts, the process can still be complicated and daunting, especially if you’re preparing the first set of accounts or have limited accounting experience.
In this instance, you may wish to seek professional help. This can help ensure you remain compliant and save you plenty of time (though accountants can be quite expensive). Alternatively, accounting software like Sage, Xero, and FreeAgent are great for helping you prepare micro-entity accounts.
Either way, the director(s) are still responsible for preparing, signing, and submitting micro-entity accounts correctly and on time. Failure to file is a criminal offence, and failure to file on time could result in considerable penalty charges.
2, Where should the accounts be submitted?
Active micro-companies must submit their accounts to Companies House and HMRC. Dormant micro-entities only need to submit dormant accounts to Companies House, and nothing is due at HMRC (provided that you have notified them).
Companies House
The easiest way to file micro-entity accounts with Companies House is via the online WebFiling service. This is the quickest and safest option. There are also various software providers offering accounting packages for preparing and filing annual accounts.
If you want to file audit-exempt accounts for Companies House and HMRC at the same time, you may be able to use the Company accounts and tax online (CATO) service.
Alternatively, you can file your accounts on paper through the post. However, this takes much longer, so give yourself plenty of time to file your documents on time.
Alternatively, if you need to file dormant accounts, the Rapid Formations team can do this for you at a cost of £49.99 + VAT. Your accounts will be filed within one working day, and we’ll email you once Companies House has accepted them.
HMRC
If you want to file audit-exempt accounts for Companies House and HMRC at the same time, you may be able to use the Company Accounts and Tax Online (CATO) service. However, you must include the profit and loss account for HMRC.
3. When should the accounts be submitted?
Newly incorporated companies must file their first set of accounts to Companies House within 21 months of incorporation. For example, if your business was incorporated on 1 January 2024, your first accounts will be due on 1 October 2025.
All subsequent accounts are due no later than nine months after your accounting reference date (ARD), which is the end of the company’s financial year. These filing deadlines apply whether your company is active or dormant.
Initially, your ARD will automatically fall on the anniversary of the last day of the month in which your company was incorporated. So, if your incorporation date is 1 January 2024, your ARD is 31 January, and your first set of accounts is due on 31 January 2025.
However, you can change your accounting reference date if you wish by filing form AA01 with Companies House. This change will normally affect your accounting period for Corporation Tax, so you may have to update your accounting period dates with HMRC.
Following your first set of micro-entity accounts, all future accounts should be ‘made up to’ your ARD, meaning that the financial information should cover the 12 months leading up to and including the ARD.
Lastly, if your company is active for Corporation Tax, your annual accounts for HMRC are due 12 months after the end of your company’s Corporation Tax accounting period. You must include them as part of your Company Tax Return.
Summary
As the director of a limited company, you’re legally responsible for filing the correct set of annual accounts with Companies House and HMRC each year. We hope this blog helped clarify what micro-entity accounts should include and where, when, and how you should file them.
If you have any questions about annual accounts, please let us know by posting a comment below, and we’ll get back to you as soon as possible. Alternatively, get in touch with our team, who will be happy to help.
