A micro-entity is the name given to UK-based private limited companies that are very small. Directors of micro-entities can save time when it comes to preparing and filing their accounts by submitting micro-entity accounts with Companies House. These accounts are in a vastly simplified format but contain all the key information that can be found in all statutory accounts.
If your company turnover is below the micro-entity threshold it could save you considerable time and effort. These rules were introduced to ensure that smaller companies were not subject to the same detailed and potentially onerous filing requirements as large companies.
What counts as a micro-entity?
A micro-entity is described by the government as a ‘very small company’. In tangible terms this means that you’ll be considered a micro-entity if your company can meet two out of the following three criteria:
- An average of 10 employees or less over a 12 month period.
- You have up to £316,000 on your balance sheet.
- A turnover of £632,000 or less.
Are there any exceptions?
Even if your business meets two of these criteria, there are some legal exceptions that may mean you won’t be able file abridged accounts. Currently, not-for-profit organisations, limited liability partnerships, public limited companies and financial institutions such as a bank or lender cannot file abridged micro-entity accounts. Even if you don’t qualify as a micro-entity, it may still be possible to file accounts as a small company.
How do you prepare micro-entity accounts?
Micro-entity accounts will need to include:
- An abridged profit & loss account. This will start from gross profit rather than turnover.
- An abridged balance sheet. This won’t need to include main headings such as creditors and debtors.
- An auditor’s report unless you choose to claim the Small Companies audit exemption.
Micro-entity accounts differ from the abridged accounts that small businesses can file, in that they don’t need to include a director’s report. As many micro-entities are exempt from being audited, you may not need to include an auditor’s report.
How do you file micro-entity accounts?
There are a number of different options available to smaller companies that would like to file micro-entity accounts. One means is the online Companies House WebFiling service. To file your accounts with Companies House and HMRC at the same time, you use the Company Accounts and Tax Online (CATO) service. To access this, you’ll need to have Government Gateway details and a Companies House company authentication code.
It’s also still currently possible to file your accounts on paper and post them. In doing so you need to be sure to allow plenty of time to avoid delays and potential penalties.
Advantages and disadvantages of filing micro-entity accounts
Filing micro-entity accounts has both advantages and disadvantages. The key advantage for smaller companies is that it simplifies the whole process, reducing the amount of time it takes and allowing you to concentrate on other aspects of your business.
If you opt to file micro-entity accounts you won’t need to include certain documents such as a director’s report. If your limited company is very small, perhaps made up of yourself as a director along with one or two members of staff, then it’s unlikely you will need to supply any information to shareholders. When this is the case, the year-end accounts are principally an issue of compliance that needs to be taken care of but which shouldn’t take up too much valuable time.
However, if your business is at a stage where you’re looking for new investment to allow it to grow, then the limited information contained in micro-entity accounts may be a potential drawback. Would-be investors may prefer an in-depth picture of your current financial situation prior to making any commitments.
Tailored accounting support for micro-entities and smaller companies
Venn Accounts offer a tailored Micro-Entity Accounts service to smaller companies, alongside our Statutory Accounts service. We will make sure that your company is fully compliant and also provide tailored advice to help you meet your financial goals.
Contact us today to find out more about how we can help your micro-entity thrive.
