The important point is that a company generally only needs to meet two of the three size criteria, not necessarily all three.
Which Businesses Cannot Use FRS 105?
Meeting the financial thresholds does not automatically mean a company can adopt FRS 105.
Certain businesses are excluded from the micro-entities regime because of their legal structure, activities or regulatory requirements.
Examples include:
- Public limited companies (PLCs).
- Banks, insurance companies and other authorised financial services businesses.
- Charitable companies.
- Investment undertakings and financial holding undertakings falling within the statutory exclusions.
- Companies excluded because of their membership of particular groups.
Some limited liability partnerships (LLPs) can also qualify for the micro-entities regime, subject to the relevant LLP regulations.
If your company belongs to a group, operates in a regulated sector or has an unusual ownership structure, it is worth checking eligibility with your accountant before adopting FRS 105.
How Does FRS 105 Work?
FRS 105 establishes the accounting principles that qualifying micro-entities must follow when preparing their annual financial statements.
Although the requirements are simplified, businesses must still maintain accurate accounting records and produce accounts that comply with the applicable legislation.
For a typical limited company, FRS 105 accounts include two main financial statements. If you want a wider view of the reports your business relies on, see our guide to the important financial reports for small businesses.
1. The Balance Sheet
The balance sheet provides a snapshot of your company’s financial position at the end of its accounting period.
It records:
- Assets: What the company owns or is owed, such as cash, equipment, stock and unpaid customer invoices.
- Liabilities: What the company owes, including loans, unpaid supplier invoices and tax liabilities.
- Capital and reserves: The residual interest in the company after liabilities are deducted from assets.
For example, a company might have £40,000 in assets and £15,000 in liabilities, leaving £25,000 in capital and reserves.
The balance sheet must also contain the appropriate statutory statements and required information, including relevant details of advances, credit and guarantees involving directors. If you borrow from or lend to your company, make sure your director’s loan account is up to date before the year end.
2. The Profit and Loss Account
The profit and loss account summarises the company’s financial performance over the accounting period.
It shows income earned, expenses incurred and the resulting profit or loss.
For example:
| Financial Item | Amount |
|---|
| Annual turnover | £120,000 |
| Business expenses | £75,000 |
| Profit before tax | £45,000 |
This simplified example assumes there are no other income, finance costs or adjustments.
Although a profit and loss account must be prepared, qualifying micro-entities are generally not required to file it publicly at Companies House.
That distinction is important. Preparing annual accounts and filing accounts publicly are not necessarily the same thing.
What Information Must Be Included in FRS 105 Accounts?
One of the main advantages of FRS 105 is the reduced disclosure requirements.
Unlike larger companies, micro-entities are not normally required to prepare extensive explanatory notes covering every aspect of their finances.
However, certain information must still be disclosed, including where applicable:
- Advances, credit and guarantees granted to directors.
- Financial commitments, guarantees and contingencies not included in the balance sheet.
- Required information about off-balance-sheet arrangements where relevant.
- Average employee numbers, where required by the applicable reporting rules.
- Other information specifically required by company law or FRS 105.
The exact disclosures depend on the company’s circumstances.
Micro-entity accounts also include statutory wording confirming that they have been prepared in accordance with the provisions applicable to companies subject to the micro-entities regime.
These disclosures may be presented at the foot of the balance sheet rather than in extensive accompanying notes.
FRS 105 vs FRS 102: What’s the Difference?
One of the most common questions small business owners ask is whether they should use FRS 105 or FRS 102.
Both are UK financial reporting standards, but they serve different purposes.
FRS 102 is the principal financial reporting standard for many UK businesses that do not apply UK-adopted international accounting standards. It also includes a reduced disclosure framework under Section 1A for qualifying small entities.
FRS 105 is designed specifically for qualifying micro-entities and offers a more simplified approach.
| Feature | FRS 105 | FRS 102 |
|---|
| Typical users | Qualifying micro-entities | Small, medium and other eligible entities |
| Financial statements | Simplified | More comprehensive |
| Disclosure requirements | Minimal | More extensive |
| Deferred tax | Not recognised | Recognised where required |
| Revaluation of fixed assets | Not permitted | Permitted for qualifying assets |
| Fair value accounting | Generally not permitted | Required or permitted in certain circumstances |
| Revenue recognition (periods beginning on or after 1 January 2026) | Simplified five-step model | Full five-step model |
| Lease accounting (periods beginning on or after 1 January 2026) | Finance and operating lease classification continues | Most leases brought onto the balance sheet by lessees |
| Accounting complexity | Lower | Higher |
Which Standard Should Your Company Choose?
For many straightforward owner-managed limited companies, FRS 105 is a practical choice because it reduces reporting complexity.
However, FRS 102 may be more suitable if your company:
- Is planning to seek significant external investment.
- Has complex financial arrangements or transactions.
- Owns assets where revaluation information is particularly important.
- Needs more detailed financial reporting for lenders or shareholders.
- Expects to grow beyond the micro-entity thresholds.
Qualifying as a micro-entity does not mean you must use FRS 105. An eligible company can choose to prepare accounts under an alternative applicable reporting framework, such as FRS 102.
For businesses expecting rapid growth, choosing the right accounting standard early can help avoid unnecessary changes later.
How Does FRS 105 Treat Revenue, Assets, Depreciation and Tax?
Although FRS 105 simplifies financial reporting, it does not remove the need to apply proper accounting principles.
Businesses must still account correctly for income, expenditure, assets and liabilities.
Revenue Recognition From 2026
For accounting periods beginning on or after 1 January 2026, FRS 105 includes a simplified version of the five-step revenue recognition model used in FRS 102. Early application is permitted.
Under FRS 105, the new model applies to contracts that begin after the date the amendments are first applied, so contracts already in progress do not need to be restated.
If your sales are simple, the effect may be small. Contracts that cover several deliverables or run across more than one accounting period deserve a closer look with your accountant.
Lease accounting is not changing for micro-entities. Leases continue to be classified as finance leases or operating leases.
Fixed Assets and Depreciation
Fixed assets such as computers, machinery, vehicles and office equipment are generally recorded at cost and depreciated over their expected useful lives.
For example, if your company purchases computer equipment for £3,000 and expects to use it for three years, it might recognise depreciation of £1,000 per year using the straight-line method, assuming no residual value.
FRS 105 does not permit the revaluation model for tangible fixed assets.
Assets are generally measured using historical cost-based principles, subject to relevant depreciation and impairment requirements.
Deferred Tax
Another important difference between FRS 105 and FRS 102 concerns deferred tax.
Under FRS 105, micro-entities do not recognise deferred tax assets or deferred tax liabilities.
This removes a potentially complicated area of financial reporting.
However, businesses must still recognise their current tax liabilities appropriately and calculate Corporation Tax in accordance with HMRC rules.
Corporation Tax and Capital Allowances
It’s important to understand that accounting depreciation and tax deductions are not the same thing.
For Corporation Tax purposes, depreciation is generally added back when calculating taxable profits. Businesses may instead claim capital allowances on qualifying expenditure.
For example, purchasing a £5,000 piece of equipment could potentially qualify for a capital allowance, depending on the asset and the company’s circumstances.
The accounting treatment under FRS 105 does not automatically determine the amount deductible for tax.
You can find further guidance in HMRC’s capital allowances guidance.
Does FRS 105 Affect Corporation Tax?
Using FRS 105 does not change the Corporation Tax rates your company pays.
UK limited companies must calculate their taxable profits and pay Corporation Tax according to the applicable legislation, regardless of whether their financial statements are prepared under FRS 105 or FRS 102.
For the financial year beginning 1 April 2026, the main Corporation Tax rates are:
- 19% small profits rate: Generally applies to companies with profits of £50,000 or less.
- 25% main rate: Generally applies to companies with profits above £250,000.
- Marginal relief: May apply where profits fall between these thresholds.
These thresholds are subject to adjustments, including where a company has associated companies or a short accounting period. Special rules also apply to certain types of companies.
For example, a company reporting £40,000 in taxable profits might pay Corporation Tax at 19%, resulting in a liability of £7,600, assuming the full small profits threshold applies.
Its FRS 105 accounting profit may differ from its taxable profit because of capital allowances, disallowable expenditure and other tax adjustments.
See GOV.UK Corporation Tax rates and allowances for further information.
FRS 105 and Companies House Filing Requirements
Qualifying micro-entities benefit from reduced filing requirements at Companies House.
For many small limited companies, this is one of the biggest practical advantages of using FRS 105.
What Must Be Filed at Companies House?
Under the micro-entities regime, qualifying companies can currently file a simplified balance sheet containing the required statutory information and statements.
They do not normally need to make their profit and loss account publicly available.
However, this does not mean the company can ignore its profit and loss account. It must still prepare the appropriate financial statements and maintain supporting accounting records.
Directors also remain responsible for approving the annual accounts and ensuring that the relevant statutory filing obligations are met.
For further information, visit the Companies House annual accounts guidance.
Changes to Filing From April 2028
The rules on how accounts are filed are changing, and the plans have shifted several times, so it is worth checking the current position before you file.
- Software-only filing: From April 2028, all UK companies must file accounts at Companies House in iXBRL format using commercial software. The web and paper routes for accounts will close, although web filing remains available for items such as confirmation statements.
- Profit and loss accounts: The government had planned to require small companies and micro-entities to file a profit and loss account. On 23 October 2026 it paused that plan. For now, companies can continue to file abridged accounts, and smaller companies keep the option to leave their profit and loss information out of the accounts they file.
Because this has changed more than once, treat any future date for profit and loss filing with caution until it is confirmed. You can read the government’s position in the GOV.UK announcement on accounts filing from April 2028.
HMRC’s Free Filing Service Has Closed
HMRC’s free Company Accounts and Tax Online (CATO) service closed on 31 March 2026. Since 1 April 2026, companies have needed commercial software to file their annual accounts and Company Tax Returns with HMRC.
If you file your own accounts, check that your software can produce both your accounts and your CT600, and that it will meet the Companies House requirements from April 2028. See our overview of accounting software if you are choosing a package.
Are FRS 105 Accounts Publicly Available?
Yes, the financial information filed at Companies House becomes part of the public company record.
However, qualifying micro-entities can currently keep their detailed profit and loss account off the public register.
This provides a degree of financial privacy, which can be particularly attractive to small owner-managed companies.
It does not mean the information is completely private. HMRC, shareholders and other parties with appropriate rights may still require access to fuller financial information.
FRS 105 Accounting and Filing Deadlines
Choosing FRS 105 does not extend your company’s statutory filing deadlines.
Micro-entities generally follow the same annual accounts and Corporation Tax deadlines as other private limited companies.
| Requirement | Typical Deadline |
|---|
| First annual accounts | 21 months after incorporation |
| Subsequent annual accounts | 9 months after the financial year-end |
| Corporation Tax payment | 9 months and 1 day after the end of the Corporation Tax accounting period |
| Corporation Tax return (CT600) | 12 months after the end of the Corporation Tax accounting period |
These are the standard deadlines for most private limited companies. Special circumstances, including changes to your accounting reference date, shorter accounting periods and larger-company Corporation Tax payment rules, can affect the deadlines.
Your accounts are separate from your annual confirmation statement, which has its own deadline. If your company is new, also make sure you have registered for Corporation Tax with HMRC.
Example: A Company With a 31 March Year-End
Suppose your limited company has an accounting year ending on 31 March 2027, and its Corporation Tax accounting period ends on the same date.
Its usual deadlines would be:
- 31 December 2027: File annual accounts at Companies House.
- 1 January 2028: Pay Corporation Tax, assuming the normal payment rules apply.
- 31 March 2028: Submit the Corporation Tax return to HMRC.
Notice that Corporation Tax is normally payable before the CT600 filing deadline.
This catches out some business owners, particularly those preparing their first company accounts.
At Accounting Wise, we recommend preparing accounts well ahead of these dates so there is enough time to review your figures, identify potential tax savings and avoid last-minute filing problems.
What Happens If You Miss Your Filing Deadlines?
FRS 105 simplifies accounting requirements, but it does not provide any exemption from late filing penalties.
Companies House and HMRC operate separate penalty systems.
Companies House Late Filing Penalties
For private limited companies, the standard late filing penalties are:
| How Late | Penalty |
|---|
| Up to 1 month | £150 |
| More than 1 month, up to 3 months | £375 |
| More than 3 months, up to 6 months | £750 |
| More than 6 months | £1,500 |
Penalties are normally doubled if accounts are filed late in two consecutive financial years.
Persistent failure to file accounts can also result in enforcement action, including potential prosecution of directors and company strike-off proceedings.
See the official Companies House late filing penalties guidance.
HMRC Corporation Tax Penalties
HMRC can also issue penalties for late Corporation Tax returns. The fixed penalties doubled for returns with a filing deadline on or after 1 April 2026.
For most companies, the standard penalties now include:
- £200 if the return is filed late, up to three months.
- A further £200 if the return is still outstanding after three months.
- Tax-geared penalties of 10% of the unpaid tax after six months and again after twelve months.
- Higher fixed penalties of £1,000, rising to £2,000 in total, where returns are late three times in a row.
Late Corporation Tax payments can also attract interest.
Importantly, submitting your accounts to Companies House does not automatically mean your Corporation Tax return has been filed with HMRC.
Both obligations must be handled correctly. HMRC sets out the current rates in its Corporation Tax penalty determination notes.
Advantages of Using FRS 105
For eligible businesses, FRS 105 can offer several useful benefits.
1. Less Administrative Work
Preparing simplified accounts generally involves fewer disclosures and less complicated accounting treatments.
For a small business owner who already has plenty to manage, this can make year-end reporting more straightforward.
2. Potentially Lower Accountancy Costs
Because FRS 105 accounts are generally less complex than full FRS 102 accounts, they may take less time to prepare.
However, the actual cost depends on the quality of your bookkeeping, the number of transactions and the complexity of your business.
3. Greater Financial Privacy
The ability to file reduced information at Companies House means competitors and other members of the public generally have less visibility of your company’s financial performance.
This is the benefit most exposed to future rule changes, so it is worth keeping an eye on the Companies House developments described above.
4. Simpler Accounting Policies
FRS 105 removes certain complex accounting requirements, including deferred tax accounting and many fair value measurements.
This can make financial reporting easier to understand for directors without an accounting background.
Disadvantages of FRS 105
Despite its advantages, FRS 105 is not necessarily the best option for every qualifying company.
Less Detailed Financial Information
Micro-entity accounts contain limited information compared with accounts prepared under FRS 102.
This can make it harder for external parties to assess a company’s financial performance.
Potential Issues With Lending and Investment
Banks, lenders and investors may request more detailed financial information than FRS 105 accounts provide.
For example, if you apply for a substantial business loan, your lender might request management accounts, cash flow forecasts or accounts prepared using a more comprehensive reporting framework.
Restrictions on Accounting Treatments
FRS 105 does not allow certain accounting treatments available under FRS 102, such as the revaluation of tangible fixed assets.
This may make it less suitable for some businesses with significant property holdings or complex assets.
Less Suitable for Growing Companies
A company approaching the micro-entity thresholds may soon need to adopt a different reporting framework.
Moving from FRS 105 to FRS 102 can involve changes to accounting policies, comparative figures and financial statement presentation.
For this reason, it is worth considering your company’s growth plans before choosing FRS 105 purely because it offers simpler reporting.
Do Micro-Entities Need an Accountant?
There is no general legal requirement for a micro-entity to appoint an accountant simply because it prepares accounts under FRS 105.
Company directors can prepare and file their own accounts, provided they meet the relevant accounting and company law requirements.
However, preparing statutory accounts involves more than simply recording money coming in and going out.
Businesses must correctly account for:
Even relatively small accounting errors can affect your company’s financial statements, tax calculations and future reporting.
Working with an accountant can help ensure your accounts are prepared correctly while identifying legitimate opportunities to manage your tax liabilities efficiently. If you are weighing it up, read our guide on why SMEs need an accountant or see our limited company accounting prices.
At Accounting Wise, we work with limited companies across the UK, helping business owners manage their annual accounts, Corporation Tax returns and ongoing accounting responsibilities without unnecessary complications.
Practical Tips for Preparing FRS 105 Accounts
If your company qualifies for FRS 105, a little preparation throughout the year can make the accounts process considerably easier.
Keep Your Bookkeeping Up to Date
Don’t leave your bookkeeping until the end of the financial year.
Regularly recording sales, purchases, expenses and payments helps maintain accurate financial information and reduces the risk of errors. Our list of common bookkeeping mistakes is a useful checklist.
Separate Business and Personal Finances
Use a dedicated company bank account and avoid paying personal expenses directly from the business wherever possible.
Where personal transactions do occur, ensure they are recorded correctly, particularly if they affect your director’s loan account.
Review Your Balance Sheet Regularly
Your balance sheet should accurately reflect the company’s assets and liabilities.
Check that outstanding customer invoices, unpaid supplier bills, loans and tax balances are correctly recorded.
Monitor the Micro-Entity Thresholds
If your business is growing, keep an eye on turnover, assets and employee numbers.
Crossing the thresholds does not always mean an immediate change of reporting standard, but it could affect your eligibility in future years.
Plan for Corporation Tax
Set aside money throughout the year to cover your expected Corporation Tax liability.
Remember that your accounting profit and taxable profit may differ, so use a realistic tax estimate rather than simply applying a percentage to the profit shown in your bookkeeping software. You may also want to read about the benefits of paying Corporation Tax early.
Review Your Accounting Standard Each Year
FRS 105 may suit your business today, but that doesn’t necessarily mean it will remain the best choice indefinitely.
Changes in turnover, financing arrangements, company structure or future plans can make another reporting framework more appropriate.
Need Help With Your Limited Company Accounts?
FRS 105 can make financial reporting considerably simpler for the UK’s smallest limited companies, but choosing the right accounting standard is only one part of keeping your business compliant.
You still need accurate bookkeeping, properly prepared annual accounts, timely Companies House submissions and correctly calculated Corporation Tax returns.
That’s where Accounting Wise can help.
Our experienced team supports limited company directors across the UK with straightforward accounting services, helping you stay on top of your responsibilities while focusing on running your business.
Whether you’re preparing your first set of company accounts, wondering if FRS 105 is suitable or looking to switch accountants, we’re here to make things easier.
Looking for reliable, straightforward accounting support? Explore our limited company accounting services and find out how Accounting Wise can help.
Final Thoughts: Is FRS 105 Right for Your Business?
FRS 105 provides a simplified financial reporting framework for qualifying micro-entities, helping smaller UK businesses meet their statutory accounting obligations without the complexity associated with more extensive reporting standards.
With increased micro-entity thresholds applying from April 2025, an updated revenue recognition model from January 2026 and software-only filing coming in April 2028, it is a good time to review whether FRS 105 still suits your company.
For many owner-managed limited companies, FRS 105 offers a sensible balance between compliance, simplicity and reduced administration.
However, it isn’t always the best option, particularly for businesses seeking external finance, holding complex assets or planning significant growth.
The key is choosing an accounting approach that meets your company’s legal obligations while supporting its longer-term needs.
If you’re unsure whether FRS 105 is suitable for your limited company, speaking to an experienced accountant can help you make the right decision and avoid unnecessary complications further down the line.
