FRS 105 at Ten: How the Micro-Entity Regime Became Britain's Default Accounts Filing — and Why April 2025 Just Widened the Net

The Financial Reporting Council issued FRS 105 — the Financial Reporting Standard applicable to the Micro-entities Regime — in July 2015. It took effect for accounting periods beginning on or after 1 January 2016, which means that as of January 2026 an entire decade of UK micro-entities have filed their accounts under it.

For a standard that occupies fewer than 150 pages and asks for only two footnote disclosures by default, FRS 105 has done remarkably heavy lifting. The vast majority of UK companies on Companies House's active register sit well within the micro-entity thresholds. And after the Companies (Accounts and Reports) (Amendment) Regulations 2024 (SI 2024/1303) lifted those thresholds for financial years beginning on or after 6 April 2025, around 113,000 more small companies became newly eligible to drop down to micro.

This piece looks at where the regime came from, what it actually permits, how take-up breaks down against eligibility, and what the April 2025 uplift — combined with ECCTA's full-P&L mandate — will mean for the simplest accounts on the register.

The legislative scaffolding

The micro-entities regime is legal, not just accounting. It sits in Part 15 of the Companies Act 2006 and was carved out by the Small Companies (Micro-Entities' Accounts) Regulations 2013 (SI 2013/3008), which transposed Article 36 of the EU Accounting Directive (2013/34/EU). The directive let member states create an even simpler accounts regime for the smallest entities; the UK implemented it almost immediately.

That left a two-year gap in which FRS 105 did not yet exist. Until accounting periods beginning on 1 January 2016, UK micros could elect the legal regime but had to apply FRSSE (the Financial Reporting Standard for Smaller Entities) or, briefly, the FRSSE 2015 micro-entity addendum. FRS 105 absorbed those interim arrangements and became the single accounting framework for the regime.

What micro-entities are spared

The bargain at the centre of FRS 105 is straightforward: directors get a substantially reduced reporting burden in exchange for accepting a more rigid, cost-based measurement model. The principal simplifications are:

1. No deferred tax recognition. Section 29 of FRS 102 simply does not apply. Timing differences are ignored.
2. No fair value accounting. Financial instruments, investment property and biological assets are carried at cost. Derivatives are off-book.
3. No revaluation of fixed assets. Historic cost only, regardless of market value.
4. Two prescribed footnote disclosures by default: off-balance-sheet arrangements, and advances or credits granted to directors.
5. No directors' report required for filing at Companies House.
6. No statement of comprehensive income, no cash-flow statement, no statement of changes in equity.

The accounts that emerge — usually a two-page balance sheet and a short profit-and-loss account — are described in the regulations as deemed to give a true and fair view provided the prescribed formats are followed. This is the only place in UK company law where the true-and-fair override is statutorily presumed rather than reasoned to.

The thresholds before and after April 2025

A company qualifies for micro status if it meets at least two of three quantitative tests, in either the financial year in question or the preceding year. The thresholds did not move between 2013 and 2024. SI 2024/1303 then lifted both money-denominated tests by roughly 58 per cent.

The Department for Business and Trade impact assessment accompanying SI 2024/1303 estimated that around 113,000 small companies would become newly eligible to file as micros from the first qualifying financial year, with the bulk of the migration landing in the 2025/26 and 2026/27 filing cycles.

There is also a set of eligibility exclusions that no amount of size-test compliance will fix. A company cannot use FRS 105 if it is a public company, a parent preparing group accounts, a financial institution, an investment undertaking, a credit institution, an insurer, or — more subtly — a member of an ineligible group. LLPs may use FRS 105 under SI 2016/575, but charitable companies, community interest companies and authorised firms cannot. On Companies House sampling of accounts-type fields by SIC code, around one in twelve otherwise-eligible companies fails one of these structural tests.

How micro sits against the small and medium regimes

The simplest way to see what FRS 105 actually buys is to set it against the regimes immediately above it. The thresholds in the table below reflect the post-April 2025 figures.

*Medium-sized subsidiaries can claim the section 479A parent guarantee exemption, which we covered separately.

The space between micro and small is genuinely wide: roughly £368,000 of additional turnover headroom and a meaningful uplift in balance-sheet capacity, all without changing audit status. That is the gap into which the April 2025 uplift drops 113,000 companies.

Take-up is much lower than eligibility suggests

This is where the editorial story diverges from the regulatory one. Around 4.6 million companies sit on the active UK register, of which roughly 95 per cent meet the small-company thresholds, and of those, the overwhelming majority would also meet the micro tests. Yet only a minority of eligible companies actually file under FRS 105.

ICAEW and ICAS commentary, together with sampling of the accounts-type field in the Companies House bulk product, has consistently put micro filings at around:

• 35–40 per cent of eligible companies filing under FRS 105 (true micro accounts)
• ~50 per cent filing under FRS 102 Section 1A despite qualifying as micro
• ~10 per cent filing under full FRS 102, often at lender insistence

The reasons are not mysterious. Three recur in practice:

1. Lender refusal. High-street banks and asset-finance providers routinely require FRS 102 1A or full FRS 102 accounts before granting facilities, on the basis that micro accounts strip out the line items needed to construct a basic credit assessment.
2. Software defaults. Most cloud accounting platforms default a new limited company to FRS 102 1A, and the cost of switching down to FRS 105 once a year of comparatives exists is greater than the cost of staying.
3. Deferred tax noise. A growing micro will eventually breach the threshold and need to restate under FRS 102, at which point deferred tax must be recognised. Firms that anticipate growth often start on the higher framework to avoid the transition adjustment.

The April 2025 uplift will pull some of these companies back down. It will also, less helpfully, create a tier of newly-eligible micros whose existing FRS 102 1A accounts already disclose more than the regime requires, and which now have to choose whether to keep that disclosure voluntarily.

What ECCTA changes

The Economic Crime and Corporate Transparency Act 2023 leaves the FRS 105 measurement rules entirely alone. It does, however, reshape what micro accounts look like in two ways.

First, the software-only filing mandate will eventually apply to micros as well as small companies. Companies House has confirmed that micro accounts will need to be submitted as iXBRL-tagged files through approved third-party software. The minority of micro filings that still arrive on paper — around six per cent of the 2024 micro cycle, on Companies House's annual reports — will be phased out, and the free WebFiling route for the smallest accounts disappears with them.

Second, and more substantively, the full profit-and-loss mandate ends the asymmetry between micros and filleted small companies. Until ECCTA's commencement, a small company could file abridged or filleted accounts that omitted the P&L from the public view, while a micro filed its P&L automatically. From the commencement date — currently expected in the 2026/27 filing window — both regimes file a full P&L, and the disclosure advantage that drove some small companies up the framework chain quietly disappears.

Combined, those two changes weaken the most-cited reasons not to elect micro status, and the April 2025 threshold uplift broadens the pool. Whether take-up actually shifts will depend on how quickly software vendors update their defaults — and on whether the lender community drops its preference for FRS 102 1A as the disclosure gap narrows.

What to watch on the register

Three signals will be worth tracking through the 2026 filing cycles:

• Migration filings. Companies switching from FRS 102 1A down to FRS 105 must disclose the change of accounting framework in the comparatives. The wording on the cover sheet is a useful proxy for take-up.
• Late-filing tail. Micros have historically been over-represented in late filings, partly because directors of the smallest companies are most likely to file themselves rather than via an agent. The software-only mandate will either improve that ratio or make it sharply worse, depending on directors' tolerance for new platforms.
• Audit-threshold drift. The audit thresholds went up in April 2025 by the same regulations that lifted the micro thresholds. The combined effect is that a company can now sit comfortably below the audit floor and file under FRS 105 — a regulatory zone that did not really exist before.

Ten years in, FRS 105 has done what the regime was designed to do: cut compliance cost for genuinely small companies without compromising the basic public-record function of the register. The next two filing cycles will reveal whether the April 2025 uplift quietly turns the regime from a minority preference into the default — and whether ECCTA's full-P&L mandate finishes the job that FRS 105 started.