Annual accounts and small businesses

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Every business needs to prepare annual reports and accounts, but the rules are very different for small businesses and with even simpler rules for what Companies House considers ‘micro-entities’. Adam Corless explains the micro-entity reporting options.

Every business needs to prepare annual reports and accounts, but the rules are very different for small businesses and with even simpler rules for what Companies House considers ‘micro-entities’. Adam Corless explains the micro-entity reporting options.

The government considers a business to be a micro-entity if it meets any two of the following criteria – an annual turnover of less than £632,000, less than £316,000 on its balance sheet or employing 10 people or less.

There is a big step up to what the government considers a small business, having to meet any two of the following – an annual turnover of less than £10.2 million, less than £5.1 million on its balance sheet or employing 50 people or less.

These definitions matter, with simpler annual reporting options for micro-entities.

Micro-entities can prepare and file a balance sheet with less information than for a small company. Additionally, a micro-entity can benefit from the exemptions available to small companies such as:

  • Exemption from audit
  • The requirement to file a directors’ report or profit and loss account at Companies House

A micro-entity must prepare accounts that contain:

  • A balance sheet
  • A profit and loss account
  • An auditor’s report (unless the Company is claiming exemption from audit as a small company)
  • Any notes to the accounts

Micro-entities can also choose to fillet their accounts, reducing the amount of information that is publicly available, stripping out the profit and loss account and any associated profit and loss notes.

There are obvious benefits for micro-entities with these simplified reporting requirements, saving considerable time (and money).

But just because a business qualifies for the micro-entity reporting option that does not necessarily mean it is a good idea.

Businesses are that expecting rapid growth, looking to bring in new shareholders, wishing to raise external investment, or even secure bank borrowing may struggle given the limited financial information available via this route.

It is also important to note that not all micro-entities can choose this reporting route. These include not-for-profits, limited liability partnerships, financial services companies, subsidiaries of larger companies, businesses listed on public markets and businesses that look after a collective pool of investor assets.

Start-up and small businesses should consider carefully their annual reporting route with their accountant to determine the best option for their business.

Do you need extra information?

Adam Corless - Senior Accounts Manager at Hillier Hopkins

Adam joined Hillier Hopkins in July 2021 as an Accounts Manager and was promoted to Senior Accounts Manager in October 2022.

Contact Adam at adam.corless@hhllp.co.uk or on +44 (0)1908 713 861

Milton Keynes