What is the difference between micro entity and small company accounts?

Introduction

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This is a question I am asked constantly by directors, particularly those running owner managed businesses or newly incorporated companies. On the surface, micro entity accounts and small company accounts can look very similar, yet the differences between them matter more than many people realise.

Choosing the correct accounting framework affects how much information you must prepare, what is publicly visible at Companies House, how banks and lenders view your business, and how much flexibility you have as your company grows. I often see directors assume they can simply choose whichever option looks easiest, without realising that eligibility is defined by law and that switching frameworks can have knock on effects.

In this article, I am going to explain clearly and practically the difference between micro entity and small company accounts in the UK. I will cover eligibility thresholds, reporting requirements, filing obligations, public disclosure, and the real world pros and cons of each. I will also explain how this choice fits into wider business planning, based on what I see working well in practice.

By the end, you should understand which category your company falls into, what that means for your accounts, and how to approach this as your business develops.

Why company size classifications exist at all

Before getting into the detail, it helps to understand why these categories exist.

UK company law recognises that very small businesses should not face the same reporting burden as larger, more complex organisations. Preparing full statutory accounts with extensive disclosures can be expensive and disproportionate for a one director company with modest turnover.

As a result, company law provides simplified reporting frameworks for smaller businesses, with micro entities being the smallest category, followed by small companies.

Each step up comes with increased disclosure and complexity, but also greater credibility and flexibility.

What is a micro entity

A micro entity is the smallest category of limited company under UK law.

Micro entity accounts are designed for very small businesses with simple financial affairs. They allow for highly simplified accounts with minimal disclosures.

To qualify as a micro entity, a company must meet at least two of the following criteria for a financial year:

• Turnover of £632,000 or less
• Balance sheet total of £316,000 or less
• Average number of employees of 10 or fewer

If a company exceeds two of these thresholds, it will usually move out of the micro entity regime.

In practice, most one person companies, freelancers, consultants, and small service businesses fall comfortably within these limits.

What are micro entity accounts

Micro entity accounts are prepared under a specific accounting standard known as FRS 105.

This standard is deliberately simple and strips out many of the accounting options and disclosures found in other frameworks.

Micro entity accounts typically include:

• A simplified balance sheet
• A very limited set of notes
• No profit and loss account filed publicly

The profit and loss account is still prepared for HMRC and internal use, but it does not appear on the public record at Companies House.

This is one of the biggest attractions of micro entity accounts for owner managed businesses that value privacy.

What is a small company

A small company sits one step above a micro entity.

To qualify as a small company, a business must meet at least two of the following criteria:

• Turnover of £10.2 million or less
• Balance sheet total of £5.1 million or less
• Average number of employees of 50 or fewer

These thresholds are significantly higher than those for micro entities, which means many growing businesses will move into the small company category long before they feel large in a practical sense.

It is also worth noting that a company that does not qualify as a micro entity may still qualify as a small company.

What are small company accounts

Small company accounts are prepared under FRS 102, using the small entities regime.

This framework is more detailed and flexible than FRS 105, and it allows for a wider range of accounting treatments.

Small company accounts usually include:

• A balance sheet
• A profit and loss account
• More detailed notes
• Directors’ report

When filed at Companies House, small companies can still choose to file abbreviated versions, meaning the profit and loss account does not have to be publicly available. However, more information is visible compared to micro entity filings.

Key structural differences between the two

From a structural point of view, the main differences between micro entity and small company accounts relate to complexity and disclosure.

Micro entity accounts are highly condensed and standardised. There is very little room for judgement or alternative accounting treatments.

Small company accounts are more detailed and require greater professional judgement, particularly around accruals, provisions, and asset treatment.

This has implications not only for compliance, but also for how useful the accounts are as a management tool.

Differences in accounting standards

Micro entities use FRS 105, while small companies use FRS 102.

This difference is more important than it sounds.

FRS 105 removes or simplifies many accounting concepts, including:

• Deferred tax
• Revaluation of assets
• Complex financial instruments
• Certain accruals and provisions

FRS 102, even in its small entities version, retains these concepts and allows more flexibility in how transactions are treated.

In practice, this means micro entity accounts are quicker and cheaper to prepare, but less adaptable to complex situations.

Public disclosure and privacy

One of the most practical differences for directors is what information becomes public.

Micro entity accounts filed at Companies House show:

• A simplified balance sheet
• Minimal notes
• No turnover figure
• No profit figure

This level of privacy is appealing to many small business owners, particularly consultants and service providers.

Small company accounts, even in abbreviated form, often reveal more detail, and in some cases turnover may be inferred from notes or disclosures.

If privacy is important to you, this is a factor worth considering, although eligibility rules must still be met.

Impact on banks and lenders

This is an area where I often see surprises.

While micro entity accounts are perfectly valid for legal and tax purposes, banks and lenders often prefer to see small company style accounts, particularly where borrowing is involved.

In practice:

• Micro entity accounts may be sufficient for basic banking
• Loan applications often require full profit and loss accounts
• Mortgage lenders for directors frequently ask for detailed accounts

This does not mean you cannot borrow as a micro entity, but it often means providing additional information beyond what is filed publicly.

Small company accounts can sometimes present a more complete financial picture, which can be helpful when dealing with external parties.

Differences in preparation cost and effort

Micro entity accounts are generally cheaper and quicker to prepare.

They involve:

• Fewer disclosures
• Less judgement
• Simpler accounting treatments

Small company accounts require more work, more review, and often more explanation to directors.

From a cost perspective, this can be a deciding factor for very small businesses, especially in the early years.

However, cost should not be the only consideration. The usefulness and credibility of the accounts also matter.

Growth and future proofing considerations

One of the mistakes I see is companies sticking rigidly to micro entity accounts even as the business grows more complex.

If a company is approaching the micro entity thresholds, or expects growth, it can sometimes make sense to prepare small company style accounts early.

This can:

• Avoid disruption when thresholds are exceeded
• Improve comparability year to year
• Support funding or investment discussions

While you cannot file as a micro entity if you no longer qualify, you can choose to adopt more detailed accounting practices earlier if it suits the business.

Transitioning between micro entity and small company accounts

Moving from micro entity to small company accounts is usually straightforward, but it does require care.

Common changes include:

• Additional disclosures
• More detailed note preparation
• Review of accounting policies
• Possible restatement of comparatives

I always advise planning this transition rather than reacting to it after the year end, particularly if the business is growing quickly.

Tax implications and HMRC perspective

From a Corporation Tax perspective, both micro entity and small company accounts are acceptable.

HMRC is concerned with accuracy, consistency, and compliance, not the size category itself.

However, more detailed accounts can sometimes make tax positions clearer, particularly around:

• Capital allowances
• Director loan accounts
• Provisions and accruals
• Related party transactions

Micro entity accounts do not remove the need for accurate underlying records. They simply reduce what is publicly disclosed.

Common misconceptions I see in practice

There are a few misunderstandings that come up repeatedly.

One is that micro entity accounts are optional. They are not. A company must qualify to use them.

Another is that micro entity accounts mean less work overall. While filing is simpler, bookkeeping and tax calculations still need to be done properly.

I also see directors assume that micro entity accounts look less professional. This is not true in a legal sense, but perception can vary depending on who is reviewing them.

Which option is better in practice

There is no universal answer to this question.

For very small owner managed companies with simple finances, micro entity accounts are often ideal. They are compliant, private, and cost effective.

For growing businesses, companies seeking finance, or those with more complex transactions, small company accounts often provide greater flexibility and credibility.

In my professional opinion, the right choice depends on:

• Company size and growth plans
• Complexity of transactions
• External reporting needs
• Desire for privacy
• Cost considerations

Role of professional advice

While eligibility is defined by law, the practical implications of choosing one framework over another are where professional advice adds value.

An accountant can help you:

• Confirm which category applies
• Assess future growth and risk
• Decide when to transition frameworks
• Ensure compliance without overcomplication

I often help clients review this annually, rather than assuming last year’s approach is still the best fit.

Final thoughts

The difference between micro entity and small company accounts is not just technical. It affects how your business is reported, perceived, and managed.

Micro entity accounts offer simplicity and privacy, which suits many small businesses perfectly. Small company accounts offer greater detail and flexibility, which becomes increasingly valuable as a business grows.

Understanding where your company sits, and where it is heading, is key. In my experience, the best outcomes come from choosing the framework that supports both compliance today and sensible planning for tomorrow.

You may also find our guidance on What records does a limited company need to keep and When do I need to file company accounts with Companies House helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.