Micro Entities' Accounts

A micro entity is a very small company but there are qualifying conditions that a company must meet under the Companies Act 2006 to be classed as a Micro Entity.

To qualify as a Micro Entity, at least two of the following conditions must be met in relation to the financial year in question:

• annual turnover must not be more than £632,000;
• balance sheet total must not be more than £316,000;
• average number of employees must not be more than 10.

The maximum figures for turnover must be proportionately adjusted when dealing with a period that is not a full financial year. The balance sheet total is the aggregate of the amounts shown as assets in the company’s balance sheet. The average number of employees is calculated by adding together totals for the number of persons employed under contracts of service in each month and dividing by the number of months in the financial year.

The Small Companies (Micro Entities’ Accounts) Regulations 2013 introduced an exemption from certain financial reporting requirements for Micro Entities preparing Companies Act individual accounts. The Micro Entity provisions are optional and qualifying companies may still choose to prepare accounts in accordance with the regimes in force for larger companies.

The decision to apply the Micro Entity exemptions will depend on the individual circumstances of the reporting entity. For example, current and potential creditors and lenders to a business may require more information than Micro Entity accounts provide. On the other hand, a Micro Entity with an investment property and little or no borrowings may be attracted by the fact that, under the Micro Entities regime, investment properties will not need to be revalued each year.

Entities should consider carefully the various implications before deciding whether or not to take advantage of the Micro Entity exemptions.

Micro Entity Accounts

For their shareholders, Micro Entities must prepare:

• an abridged balance sheet;
• an abridged profit and loss account;
• a directors’ report (for financial years beginning on or after 1 January 2016, Micro Entities are no longer required to prepare this, s.415(1A) Companies Act 2006 as inserted by Regulation 7, Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015); and
• an auditors’ report (unless the Micro Entity claims the Small Companies audit exemption).

The required formats for the abridged balance sheet and abridged profit and loss accounts of Micro Entities are set out in Section C, Part 1, Schedule 1 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, (as amended by regulation 10 Small Companies (Micro Entities’ Accounts) Regulations 2013 and regulation 16(2) Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015).

There is more information on the Micro Entities’ Regime on the ICAEW’s (Institute of Chartered Accountants of England and Wales) website, which is available here.