FRS 105 is the FRC’s accounting standard for companies and LLPs that qualify as micro entities and choose the micro entities regime. A company qualifies if it meets two of three limits: turnover of £1 million or less, a balance sheet total of £500,000 or less and no more than 10 employees. In return for very short accounts, FRS 105 removes most accounting choices: everything is at cost, there is no deferred tax and no revaluation.

Who counts as a micro entity?

Section 384A of the Companies Act 2006 sets the test. A company meets the qualifying conditions in a year if it satisfies two or more of these requirements:

  • turnover not more than £1 million;
  • balance sheet total not more than £500,000;
  • average number of employees not more than 10.

The turnover and balance sheet figures were raised with effect from 6 April 2025, and Companies House guidance applies them to periods starting on or after that date. In its first financial year a company qualifies if it meets the conditions in that year. After that, a change in whether it meets the conditions only affects its status if the change happens in two consecutive financial years, so one unusual year does not knock a company out of the regime. For a period that is not a full year the turnover limit is adjusted proportionately, and a parent company must also meet the small group test.

Worked example: does the company qualify?

Illustration only. A consultancy has three years of figures. Year 1 (its first year): turnover £800,000, balance sheet total £600,000, 6 employees. It meets the turnover and employee limits, two of three, so it qualifies. Year 2: turnover £1.2 million, balance sheet total £550,000, 8 employees. It meets only the employee limit, but because status changes only after two consecutive years of failing, it remains a micro entity for Year 2. Year 3: turnover £1.3 million, balance sheet total £520,000, 9 employees. It has now failed in two consecutive years, so it is no longer a micro entity for Year 3 and moves to FRS 102 Section 1A.

Which companies cannot use it?

Section 384B excludes a company if, at any time in the year, it is excluded from the small companies regime, or it is an investment undertaking, a financial holding undertaking, a credit institution, an insurance undertaking or a charity. The regime is also unavailable to a parent company that prepares group accounts and to a company whose accounts are included in consolidated group accounts for that year. Many holding company structures therefore fall outside FRS 105 even when each company is tiny.

FRS 105 itself is not limited to companies. Paragraph 1.5 extends it to LLPs and qualifying partnerships that qualify as micro entities and apply the regime.

What do FRS 105 accounts contain?

A set of micro entity accounts is very short. It has a statement of financial position (balance sheet), an income statement (profit and loss account) and a handful of notes. Under paragraph 6.2 the notes are presented at the foot of the balance sheet and cover only:

  • off balance sheet arrangements (section 410A of the Act);
  • the average number of employees (section 411);
  • advances, credit and guarantees granted to directors (section 413), including amounts repaid, written off or waived;
  • financial commitments, guarantees and contingencies not included in the balance sheet.

Paragraph 3.13A also requires the accounts to state the part of the UK where the company is registered, its registered number and whether it is public or private and limited by shares or guarantee. A micro entity does not have to prepare a directors’ report, because section 415(1A) disapplies the duty. Companies House guidance says the balance sheet must include a statement that the accounts were prepared under the micro entity provisions.

The section 413 note catches loans to directors, so an overdrawn directors’ loan account still has to be disclosed even in the shortest accounts.

How can such short accounts give a true and fair view?

Company law deals with this directly. Section 396(2A) says that the micro entity minimum accounting items are presumed to give the true and fair view required. Section 393(1A) tells directors to disregard any provision of an accounting standard that would require more information than those minimum items. If the directors choose to add something extra, they must have regard to accounting standards on that item, and paragraph 1.3 of FRS 105 points them to Section 1A of FRS 102 for it.

What accounting does FRS 105 simplify or prohibit?

Area FRS 105 rule Reference
Property, plant and equipment and investment property Cost less depreciation and impairment; no revaluation or fair value Paragraphs 2.38 and 12.14
Deferred tax Not recognised Paragraph 24.7
Borrowing costs Always expensed as incurred Paragraph 20.2
Internally generated intangibles, including development costs Not recognised as an asset; expensed immediately Paragraph 13.4
Equity settled share based payments Not accounted for until shares are issued Paragraph 21.2
Fair value generally Only where FRS 105 explicitly requires or permits it Section 2

The Periodic Review 2024 brought a revised revenue section into FRS 105 for periods beginning on or after 1 January 2026, with extra simplifications. Under paragraph 1.11 the new Section 18 applies only to contracts that begin after first application, so contracts already in progress keep their existing policy. The lease changes made to FRS 102 were not copied across; the FRC states that no equivalent change was made to FRS 105.

Does a micro entity still need a going concern assessment?

Yes. FRC Factsheet 13 (September 2025) confirms that directors of a micro entity must assess whether the going concern basis is appropriate, looking at least 12 months from the date the accounts are authorised for issue. FRS 105 does not require specific going concern disclosures, but it does require disclosure if the company is being wound up. See going concern: what directors and accountants must assess.

When is FRS 105 a poor fit?

  • Property companies. Investment property stays at cost, so a rising property value never shows on the balance sheet, which may weaken the picture given to lenders.
  • Development spending. Companies that would otherwise capitalise development costs must expense them.
  • Groups. Parents preparing group accounts and subsidiaries included in consolidated accounts are excluded.
  • Users needing detail. Banks, investors or buyers may ask for fuller accounts anyway.

The alternative is FRS 102 with Section 1A. Note that the tax computation is separate either way; depreciation is still added back and capital allowances claimed instead.

What will change for micro entities in April 2028?

Companies House announced on 9 June 2026 that its accounts reforms will start in April 2028 instead of April 2027. From 1 April 2028 micro entities will have to file a copy of the profit and loss account, though it can be kept off the public register. All accounts will have to be filed using commercial software in iXBRL format, and the web and paper routes for accounts will close. The options available until then are set out in small company accounts: what to file at Companies House.

What mistakes do people make with FRS 105?

  • Retesting size each year without applying the two consecutive years rule.
  • Using FRS 105 for a subsidiary or a charity, both of which are excluded.
  • Including a revaluation or deferred tax figure, which FRS 105 does not allow.
  • Leaving out the section 413 note on directors’ advances.
  • Adding voluntary notes without following the related Section 1A requirements.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.