If you're looking into a small limited company in the UK, you might come across something called "micro company accounts" on Companies House. While they may sound a bit technical, these accounts are simpler than they seem. Let’s break it down for you step by step so you can easily navigate and understand micro company accounts.
What is a micro company?
First things first, let's understand what we mean by a micro company. In the UK, a business is considered a micro company if it meets at least two of the following criteria:
- Turnover (total sales) is no more than £632,000.
- Balance sheet total (the value of everything the company owns) is no more than £316,000.
- The average number of employees is no more than 10.
Micro companies benefit from simplified reporting obligations, meaning they can file less detailed accounts compared to larger firms.
These simpler accounts are what we’ll look at in this guide.
What are micro company accounts?
Micro company accounts are a streamlined version of the more complex financial statements larger companies submit. These accounts offer basic financial information about the company’s assets, liabilities, and net worth. The government allows micro companies to submit such accounts to reduce their administrative burden.
The accounts are prepared under FRS 105, a financial reporting standard specifically designed for micro-entities. This allows businesses to skip some of the detailed disclosures required of larger companies.
How to find micro company accounts on Companies House
Finding micro company accounts is simple and can be done in a few clicks:
- Go to Companies House: Visit the Companies House website.
- Search the company: Enter the company name you are interested in.
- Select the company: Click on the company name in the search results.
- Check filing history: Look for the "Filing history" tab and click on it.
- View/download accounts: Find the most recent "Micro company accounts" and click to view or download the document.
What’s in micro company accounts?
Micro company accounts are typically concise, containing just a few key sections. These accounts are designed to provide a summary of the business's financial position without overburdening small UK businesses with unnecessary detail. You will usually find the following sections:
The balance sheet
The balance sheet gives you a snapshot of the company’s financial position on a specific date. It shows:
- Assets: What the company owns. This could include long-term fixed assets like property or machinery, as well as current assets like cash or money owed by customers (known as receivables).
- Liabilities: What the company owes. This includes both short-term liabilities (like bills to suppliers) and long-term liabilities (like loans that will take more than a year to repay).
- Net assets: This is the difference between the assets and liabilities. It shows the overall financial health of the company. A positive figure means the company owns more than it owes, which is usually a good sign.
- Capital and reserves: This section reflects the owner’s stake in the company, including any money initially invested and any profits retained over the years.
Example of a balance sheet layout
ABC Machinery Repairs & Sales Limited, a private limited company, provides a clear example of a micro-entity balance sheet, illustrating the simplified reporting commonly found in such accounts.
According to the balance sheet as of 28 February 2023, the company reported the following financial information:
- Fixed assets: £4,627 in 2023, up from £2,192 in 2022, indicating some investment in long-term assets, likely machinery or equipment relevant to its business operations.
- Current assets: £19,928 in 2023, a significant increase from £14,793 in 2022, suggesting the company has managed to increase its liquid or short-term assets.
- Creditors (amounts falling due within one year): £(12,944) in 2023, compared to £(12,007) in 2022. This amount represents short-term obligations that the company needs to pay within the year.
The Net current assets stand at £6,984 in 2023, compared to £2,786 in 2022, showing improved liquidity and a stronger position to cover immediate liabilities.
- Total assets less current liabilities: £11,611 in 2023, up from £4,978 in 2022, suggesting an overall healthier financial stance.
- Capital and reserves: £11,611 in 2023, up from £4,978 in 2022, indicating retained earnings or equity growth over the past year.
This positive net asset position of £11,611 shows that the company owns more than it owes, which suggests financial stability.
Notes to the accounts
The notes to the accounts provide additional information about the balance sheet. This might include:
- Basis of preparation: How the accounts were prepared (e.g., under FRS 105 for micro-entities).
- Details of loans: Information about any loans or money owed to the company by its directors.
- Liabilities: Clarifications of any major financial commitments or long-term debts.
What can you learn from micro company accounts?
While micro company accounts are not as detailed as those for larger companies, they still offer useful insights:
- Company size: The balance sheet total (assets minus liabilities) can give you a rough idea of the company's size and scale.
- Financial health: By looking at net assets, you can gauge whether the company’s financial position is stable. Positive net assets mean the company has more assets than liabilities, while negative net assets could indicate financial struggles.
- Owner’s investment: The capital and reserves section shows how much the owner has put into the business or how much profit has been reinvested into the company.
- Business development trends: Year-on-year comparisons show growth or decline
What’s missing from micro company accounts?
Because micro companies are allowed to file simplified accounts, some important information might be missing, including:
- Profit and loss statement: You won’t be able to see the company’s revenue or expenses, meaning you can’t assess its profitability over time.
- Cash flow statement: There’s no breakdown of how cash moves in and out of the business.
- Employee and director information: You won’t find details about how much employees or directors are paid.
- Detailed financial breakdowns: Limited granular information.
Examples of micro-company accounts
Double bubble UK trading Ltd micro-entity accounts
As a first example of micro-entity account, let’s take Double Bubble UK Trading Ltd, a private limited company, as an example to illustrate what you might find in micro company accounts.
According to their balance sheet as of 30 April 2023, the company reported:
- Fixed assets: £1,551
- Current assets: £3,134
- Total assets: £4,685
- Creditors (amounts falling due within one year): £41,339
- Creditors (amounts falling due after more than one year): £32,547
- Net liabilities: £(69,201)
In this case, the company has more liabilities than assets, resulting in negative net assets of £(69,201), also called net liability. This means Double Bubble UK Trading Ltd owes more than it owns, which could indicate financial challenges. The notes mention that the company has prepared these accounts under the micro-entity provisions of the Companies Act 2006, reflecting the simplified reporting regime available to small UK companies. Additionally, the company reports having zero employees during the year, which is another common characteristic of micro-entities.
DeepAI Ltd micro-entity accounts
DeepAI Ltd is a micro company registered in Leicester, England.
As of April 2021, its balance sheet reflects the following:
- Current assets: £144,828
- Creditors (due within one year): £25,511
- Net current assets: £119,317
- Total assets less current liabilities: £119,317
- Capital and reserves: £119,317
The financial summary provided in DeepAI Ltd’s accounts shows the company’s financial health at a glance. It has more assets than liabilities, suggesting stability for the financial year. However, it's worth noting that the company's accounts are brief and don't include more detailed financial information, such as a profit and loss statement.
DeepAI Ltd’s accounts also reveal that there is one employee and the company has claimed an exemption from audit under the Companies Act 2006. This exemption is common for micro-entities that fall under the financial thresholds mentioned earlier.
The company also discloses its responsibility for maintaining accurate accounting records and acknowledges its directors’ duties.
That prize guy Ltd micro-entity accounts
As a final example of micro company accounts, let’s look into That Prize Guy Ltd.
According to their balance sheet as of 31 March 2023, the company reported:
- Fixed assets: £15,491
- Current assets: £300,827
- Creditors (amounts falling due within one year): £164,760
- Net current assets: £136,067
- Total assets less current liabilities: £151,559
- Capital and reserves: £151,559
In a separate page it reports a total number of employes of 2 – versus 1 in the previous year.
Similar to the other examples we've reviewed, That Prize Guy Ltd also benefits from an audit exemption due to its micro-entity status, which allows for a streamlined reporting structure. However, That Prize Guy Ltd stands out by including a "Called up share capital not paid" line, a disclosure not present in the two previous micro-entities we covered. Although still meeting the micro company criteria, the company also shows a larger scale of operations when compared to the other two examples. This is evidenced by its significantly higher current assets.
Upcoming changes from April 2025
Starting in April 2025, there will be significant changes to the thresholds that define a micro company. The turnover threshold will increase from £632,000 to £1 million, and the balance sheet total will increase from £316,000 to £500,000. These changes mean that more businesses will qualify as micro entities and be able to file these simplified accounts.
Additionally, with the passing of the Economic Crime and Corporate Transparency Act, micro companies will soon be required to file a profit and loss account with Companies House, though parts of these accounts may not be made public. This will improve transparency but also adds a bit more complexity to the current simplified regime.
What happens when a micro-entity becomes a small company?
When a micro-entity grows and becomes classified as a small company, the company faces additional reporting and compliance requirements. Here are some of the key differences:
- Profit and loss account: Unlike micro-entities, small companies must include a Profit and Loss account in their financial statements. This account details the company’s revenues, costs, and profits or losses over the financial period, providing more transparency into its operations.
- Director’s report: Small companies are required to file a Director’s Report, which provides insights into the company’s governance and management. Micro-entities are typically exempt from this requirement, but small companies must disclose director activities and general corporate governance details.
- More detailed notes to the accounts: Small companies are obligated to provide more detailed notes to the accounts than micro-entities. This might include more information about accounting policies, transactions with directors, and additional breakdowns of certain liabilities and assets.
- Audit requirements: Most small companies can claim audit exemptions if they meet at least two of three conditions (turnover below £10.2 million, fewer than 50 employees, and balance sheet total not more than £5.1 million). Micro-entities are automatically exempt from audit unless specifically required by shareholders or group requirements. Companies that exceed the small company thresholds, or that have an audit demand from members, will be subject to a statutory audit.
- Abridged accounts: Small companies can choose to file abridged accounts, which simplify the balance sheet and profit and loss account while still meeting more extensive disclosure requirements than micro-entity accounts.
- Employee information: Small companies must include employee numbers and wages in their financial statements, while micro-entities do not need to disclose this information.
Overall, moving from a micro-entity to a small company increases the level of financial transparency required and places additional administrative burdens on the company, including broader disclosure requirements in the accounts.
Final tips for reading micro company accounts
Here are several tips to keep in mind when reading the balance sheet of a micro-company:
- Check the date: These accounts are a snapshot of the company’s financial position at a particular point in time. If you’re making decisions based on these accounts, be aware that the company’s financial position may have changed since then.
- Compare across years: If possible, look at accounts from previous years to see if the company’s financial position is improving or deteriorating over time.
- Be aware of limitations: Micro company accounts offer a limited view of the business. If you need a deeper understanding, you might need to ask the company for more information or look at other sources like full annual reports.
- Context matters: A common mistake when analysing a balance sheet is to ignore the bigger picture. Consider industry standards, account for business cycles, and take note of the company’s size and age.
Conclusion
Reading micro company accounts on Companies House doesn’t require accounting expertise, but it does help to know what to look for. By focusing on the balance sheet and understanding the key figures, you can get a basic snapshot of the company’s financial health. While these accounts lack detailed information like a Profit and Loss statement (for now!) or cash flow details, saving the company from some administrative burden. They still provide valuable insight into small businesses in the UK.
