To start with, both micro and small businesses are required to submit a corporation tax return (CT600) to HMRC, however there are options for preparing their year- end statutory accounts. Micro companies can adopt FRS 105 (applicable to Micro entities) or FRS 102 (applicable to Small entities). Here can arise the question - which companies qualify as Micro and which are regarded Small.
The Companies Act 2006 notes that a company is classified as Micro if two of the following conditions are met:
- Turnover of £632k or less
- Balance sheet total of £316k or less
- 10 employees or less
Micro entities report their financial statements under the provisions of FRS 105. It is based on the FRS 102 (applicable to Small entities), but has been tailored to reflect the uncomplicated nature of Micro entities as well as their legal requirements - representing the true and fair value of the company. This regime allows simplified format of a company's accounts, as in the majority of cases micro companies are owner-managed and do not have complicated relationships that require the use of more complicated accounts for communicating the company's financial performance.
There are exemptions for some of the financial reporting requirements, for instance exempt from filing an auditor's report, as the audit exemption for small limited companies applies. Furthermore, are exempt from including director's report with the accounts.
What must the accounts prepared by a micro-entity contain?
i) A Balance sheet, along with footnotes
ii) An Income statement that complies with the provisions of FRS 105
iii) Notes to the accounts
Furthermore, when filing Micro entities can choose to submit Abridged accounts to Companies House, which is the extracted Balance sheet, meaning less information is available on the public register. However, HMRC will require full set of accounts - both Income statement and Balance sheet which will accompany the corporation tax return.
One of the reasons why companies may choose not to report under FRS 105 is that assets cannot be revalued and investment properties cannot be measured at fair value.
Now, let's take a closer look at what companies can be categorised as Small - a company is small if two of the following criteria are met:
- Turnover of £10.2 million or less
- Balance sheet total of £5.1 million or less
- 50 employees or less
Small and micro companies choosing not to apply the FRS 105 must produce their accounts in accordance with FRS 102. Compared to the micro accounts, small ones are a bit more complicated, however they can choose to disclose less information than the medium sized and large companies.
What must the accounts prepared by a Small entity contain?
i) A Balance sheet
ii) An Income statement
iii) Notes to the accounts
Small entities can still file abridged accounts at Companies House, also use the audit exemption, so that accounts do not need to be audited and can choose whether to send a copy of the director's report.
To sum up, in our software you can produce your accounts under FRS 105 as well as FRS 102, and the statutory required notes have already been auto-filed with the standard wording, however you can amend those should you wish to.
Balance sheet template under FRS 105 (Micro entities)
Balance sheet template under FRS 102 (Small entities)
As you can see from the above, the balance sheet for a small entity has far more headings and disclosures than those for a micro entity. For further help on creating a micro entity balance sheet, please see our article.