A company that meets the micro entity size limits still cannot use the regime if, at any time in the financial year, it was a charity, an investment undertaking, a financial holding undertaking, a credit institution, an insurance undertaking or a company excluded from the small companies regime, such as a public company or a member of an ineligible group. Parent companies qualify only if the whole group is small, and the regime is lost by a parent that prepares group accounts and by a subsidiary included in consolidated accounts.

Which companies are excluded outright?

Section 384B(1) of the Companies Act 2006 switches off the micro entity provisions for a financial year if the company, at any time within that year:

  • was excluded from the small companies regime by section 384;
  • would have been an investment undertaking as defined in Article 2(14) of Directive 2013/34/EU, were the UK a member State;
  • would have been a financial holding undertaking as defined in Article 2(15) of that Directive;
  • was a credit institution that is a CRR firm;
  • would have been an insurance undertaking as defined in Council Directive 91/674/EEC; or
  • was a charity.

The words “at any time within that year” are important. Unlike the size tests, these exclusions do not wait for two years. A company that becomes a charity or joins an ineligible group part way through a year loses the regime for that whole year.

Companies House guidance adds that micro entity accounts cannot be filed by an overseas company, an unregistered company or a company authorised to register under section 1040, and lists charitable companies, public companies and companies excluded under sections 384 or 384B among those that cannot use them.

Which companies fall out through the small companies regime?

Because section 384B(1)(a) imports the small company exclusions, a company that is excluded from the small companies regime is automatically excluded from the micro regime too. Section 384(1) excludes a company that at any time in the year was:

  • a public company;
  • an authorised insurance company, a banking company, an electronic money issuer, a MiFID investment firm or a UCITS management company;
  • a company carrying on insurance market activity;
  • a scheme funder of a Master Trust pension scheme; or
  • a member of an ineligible group.

Financial services firms are the group most often caught. A small, FCA authorised firm can be tiny in size terms and still be shut out if it falls within one of these categories, so the firm’s precise permissions need checking against the definitions.

When is a group ineligible?

Under section 384(2) a group is ineligible if any member is a traded company, a body corporate other than a company whose shares are admitted to trading on a UK regulated market, a person other than a small company with a Part 4A permission under the Financial Services and Markets Act 2000, an electronic money issuer, a small company that is an authorised insurance company, banking company, MiFID investment firm or UCITS management company, a person carrying on insurance market activity, or a Master Trust scheme funder. Section 384(3) says a company counts as small for this purpose if it qualified as small for its last financial year ending on or before the end of the year being reported on.

The effect reaches every member. A dormant property holding company in the same group as an FCA authorised broker that is not itself small is excluded from both regimes, however small its own figures are.

How do parent companies qualify?

Section 384A(8) says a parent company is a micro entity only if it qualifies on its own figures and the group it heads qualifies as a small group under section 383. For groups, section 383(4) requires two or more of:

Group test Net limit Gross limit
Aggregate turnover £15 million £18 million
Aggregate balance sheet total £7.5 million £9 million
Aggregate employees 50

Section 383(6) explains that “net” means after consolidation adjustments eliminating group transactions and “gross” means before them, and the company can use either. Section 383(7) uses each subsidiary’s figures from its individual accounts for its financial year ending with, or last before, the parent’s year end. These are the limits in force from 6 April 2025, so a holding company whose own balance sheet is tiny but whose trading subsidiaries exceed two of them cannot use micro accounts.

What if group accounts are prepared?

Section 384B(2) adds two further exclusions:

  • a parent company that prepares group accounts for the year as permitted by section 399(4), meaning a parent that is exempt from preparing group accounts but chooses to; and
  • a company that is not a parent but whose accounts are included in consolidated group accounts for the year.

The second point catches many small subsidiaries. If a larger parent consolidates them, they cannot file micro accounts even if they are within every size limit, and should look at the small companies regime instead. The consolidated accounts guide explains when consolidation is required.

How do the size limits and the two year rule work?

For financial years beginning on or after 6 April 2025, section 384A(4) requires two or more of: turnover not more than £1 million, balance sheet total not more than £500,000 and not more than 10 employees. For periods beginning between 30 September 2013 and 5 April 2025 the limits were £632,000 turnover and £316,000 balance sheet total, with the same 10 employees.

Section 384A(5) requires the turnover limit to be adjusted proportionately for a period that is not a year. Section 384A(6) defines the balance sheet total as the total of assets shown, and section 384A(7) takes the monthly average number of persons employed under contracts of service. Section 384A(3) means that once a company is in the regime, crossing the limits only changes its status if it happens in two consecutive years. The exclusions in section 384B have no such grace period.

How do the rules work in practice?

Illustration only. Four companies, each with turnover of £400,000, assets of £200,000 and three staff:

  1. A is a private company limited by guarantee registered as a charity. It is excluded by section 384B(1)(f).
  2. B is a standalone consultancy that converted to a plc during the year. It was a public company at some point in the year, so section 384(1)(a) excludes it from the small regime and section 384B(1)(a) from the micro regime.
  3. C owns all the shares in a trading company with turnover of £20 million and a balance sheet total of £10 million. The group fails two of the small group tests, so C fails section 384A(8).
  4. D is a subsidiary of a medium sized group whose parent prepares consolidated accounts. Section 384B(2)(b) excludes it.

None of the four can use micro entity accounts, even though all of them pass the individual size tests.

What should an excluded company use instead?

An excluded company that still qualifies as small will usually prepare accounts under the small companies regime using FRS 102 Section 1A; see FRS 102 Section 1A for small entities and small company filing options. A company excluded from the small regime too, such as a plc, needs full FRS 102 or another framework; FRS 100 sets out the choices.

The micro regime is not limited to companies. FRS 105 paragraph 1.5 extends the standard to LLPs and qualifying partnerships that qualify as micro entities and apply the regime. For what micro accounts contain and their limits, see FRS 105 micro entity accounts.

The most common mistake is checking only the size limits. Before filing micro accounts, confirm the company’s status for the whole year, its group position, whether anyone consolidates it and whether any group member holds a financial services permission.

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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.