Do you run a small limited company? Then, you may have heard the term micro company or micro-entity. But what does it actually mean? And does being a micro company change your accounting and filing requirements? If you are also searching for answers to all these queries, this guide is for you.
In the UK, a micro-entity is a very small company that meets specific size criteria. Also, it can benefit from simplified accounting and reporting requirements, making compliance more manageable for smaller businesses.
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What Is a Micro Company in the UK?
A micro company is generally a limited company that qualifies as a micro-entity under UK company law. But you must be thinking if it’s a limited company, how can it qualify as a micro entity, right?
Well, for accounting periods beginning on or after 6 April 2025, a company generally qualifies if it meets at least two of these three conditions:
- First is to have an annual turnover of £1 million or less
- Secondly, a balance sheet total of £500,000 or less
- And lastly, 10 or fewer employees on average
Still, meeting these thresholds does not mean the company is exempt from its legal responsibilities. Yes, a micro company is still a limited company and must maintain proper accounting records and meet its filing and tax obligations. Then, you must be thinking why a company would want to qualify for a micro-entity. It’s because it has it’s own benefits as well.
What Are the Benefits of Being a Micro Company?
One of the main advantages is the ability to prepare simpler statutory accounts. Yes, it can be possible with qualifying for a micro-entity company.
Currently, qualifying micro-entities can benefit from certain small-company exemptions, including potential exemption from an audit. They can also file a balance sheet containing less information with Companies House.
This can reduce the administrative burden for genuinely small businesses. However, simpler accounts do not mean no accounts. Your company must still keep adequate accounting records and meet its statutory filing requirements.
Do Micro Companies Pay Corporation Tax?
Yes. Being classified as a micro company does not mean that the company is exempt from Corporation Tax. So, it’s not the same as being a sole trader.
A micro company is still a limited company, so it generally needs to calculate its taxable profits and submit a Company Tax Return to HMRC. Moreover, you should be aware that a Corporation Tax is separate from the company’s Companies House accounts. This distinction is important because company size and tax liability are two different issues.
What Accounts Does a Micro Company Need to File?
Currently, a qualifying micro-entity can prepare and file simpler accounts with Companies House. The exact requirements depend on the company’s circumstances and accounting period. Thus, micro companies must also meet their filing deadlines. Because similar to a limited company, failure to file accounts on time can result in Companies House penalties.
Important 2028 Changes
Nowadays, micro companies should also be aware of upcoming changes.
From 1 April 2028, micro-entities will be required to prepare and deliver a profit and loss account to Companies House. Although they will have the option to opt out of having that information published on the public register. All companies will also have to file annual accounts using commercial software.
This means small company owners should start preparing for more digital and detailed accounts filing rather than assuming the current simplified process will continue indefinitely. (Note: these updates can get further modified depending on various factors, so always search for the recent updates from official sources)
What Is the Difference of Micro Company vs Small Company
A micro company is a sub-category of a small company. The thresholds are different.
For accounting periods beginning on or after 6 April 2025, a small company can generally meet the criteria by satisfying at least two of these conditions:
- Turnover of £15 million or less
- Balance sheet total of £7.5 million or less
- 50 employees or fewer
A company that qualifies as a micro-entity also falls within the small-company category and may benefit from the relevant small-company exemptions.
Is a Micro Company the Same as a Sole Trader?
Obviously, no. A micro company is a limited company that meets the micro-entity size criteria. It has its own legal identity, separate from its directors and shareholders.
A sole trader, on the other hand, is an individual carrying on a business personally. The business and owner are not separate legal entities. Therefore, the term micro company should not be confused with simply being a very small business or a sole trader.
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Key Takeaways
Now, you must know that a micro company is a very small limited company that meets specific UK size thresholds. Its main advantage is access to simplified accounting and reporting provisions, but it still has important legal, accounting and tax responsibilities.
Ultimately, if your company qualifies as a micro-entity, getting the accounts right is still important, particularly with the Companies House filing reforms coming into effect from April 2028.
Need help with micro company accounts? At CAIL, our professional accountants can check whether your company qualifies as a micro-entity, prepare the appropriate accounts and help you stay compliant with Companies House and HMRC requirements.