FRS 105 & Micro-Entities

shutterstock_333278366There has been a hive of activity recently in the lives of accountants due to the introduction of one consolidated set of accounting rules in the UK, FRS 102.  Having read a lot and talked even more to businesses about the implications on the presentation of financials and disclosures in their accounts and any related tax considerations, we now have another flurry of activity for Micro-entities.

What is a Micro-entity?

A Micro-entity can only be an incorporated, stand-alone entity; group accounts, charities and LLPs, amongst others, are exempt.  Unless it is a start-up and in its first year of trade, the company must satisfy 2 of the following 3 criteria, for 2 successive years, to qualify as a Micro-entity:

  • Turnover less than £632,000
  • Total assets less than £316,000
  • Not more than 10 employees

FRS 105

We have an optional new accounting standard for micro-entities (called FRS 105), which applies for the first time for accounts with an accounting period starting on or after 1 January 2016. If FRS 105 is not appropriate for a business, then FRS 102, as mentioned earlier, will apply instead.

It will be necessary to review whether FRS105 is appropriate for a business on a case by case basis. One size does not fit all.

Under FRS105, disclosure information in the accounts will be negligible and any revaluations, for example on land and buildings and investment properties, will need to be removed; this could significantly change the figures in a balance sheet and therefore could impact on lending availability, since net assets will reduce. Remuneration planning may also be impacted as a result.  For a growing business or a property investor, my thoughts are that FRS105 would not be the way forward.

For all micro-entities, consideration should be given as soon as possible as to what is appropriate. This is not just how your accounts will look; it’s about the figures involved, how readers and users of the accounts will react to any changes (e.g. banks, alternative lenders, future investors) and whether tax costs and timing of tax payments will change as a result.

If you want to understand how this could impact your business, please contact Helen Clayton ( or Chris Johnson ( Chris can also be contacted on 01254 604371.