What are Micro Entity Accounts?

Micro entity accounts are a type of financial statement designed for the smallest businesses in the UK. If your business qualifies as a micro entity, you can prepare and submit a simplified set of accounts to Companies House each year.

To qualify as a micro entity, your business must meet two of the following criteria:

    - Turnover of no more than £632,000
    - Balance sheet total of no more than £316,000
    - No more than 10 employees

It's worth noting that not all small businesses will be eligible for micro entity accounts. If a company is a member of a group, has traded on a regulated market, or is an insurance or banking company, for example, it won't be able to prepare micro entity accounts.

cat and duck discuss micro entity accounts

What are the Benefits of Micro Entity Accounts?

Preparing micro entity accounts can offer several benefits to small business owners. These benefits include: 

1. Reduced Costs: Preparing simplified accounts can save you time and money. You won't need to spend as much with your accountant to help you with your accounts, and you won't have to spend as much time gathering and organising financial data. Micro entity accounts are specifically designed to reduce the regulatory burden on the smallest businesses. By filing simplified accounts, you won't need to worry about meeting the more complex reporting requirements of larger businesses. 

2. Less Complexity: Micro entity accounts are much simpler than full statutory accounts. They contain only a few basic pieces of information, such as a snapshot of assets, liabilities and cash balances. Because micro entity accounts are simpler and more streamlined, they're often easier for small business owners to understand. This can help you make better financial decisions and identify areas where you can improve your operations. 

3. Increased Privacy: Micro entity accounts can be filed with Companies House in a simplified format that allows you to keep more information private. You won't have to disclose details such as director's salaries, which can help keep your financial information confidential. By tracking your income and expenses more closely, you can get a better understanding of your cash flow. This can help you make better decisions about when to invest in new equipment, hire new employees, or take on additional projects.

How to Prepare Micro Entity Accounts?

If you've determined that your business qualifies as a micro entity, here are the steps you should take to prepare your accounts: 

1. Gather Your Financial Information: Collect all your financial data, such as your bank statements, sales and purchase invoices, and any other relevant financial documents. Micro entities have a choice of two accounting methods: the accruals basis or the cash basis. The accruals basis records income and expenses when they are incurred, while the cash basis records income and expenses when they are received or paid. The choice of method will depend on your business and its specific circumstances.

2. Choose an Accounting Software: Select an accounting software that's designed for micro entities. There are several affordable options available that can help you with the bookkeeping and accounting tasks. To simplify your accounting process, it's important to choose an accounting software that's designed for micro entities. Look for software that offers features such as automated bank feeds, simple invoicing, and basic reporting capabilities. 

3. Prepare Your Accounts: Enter your financial data into the accounting software, and generate the relevant reports. Micro entity accounts consist of three parts: the balance sheet, the profit and loss account, and any accompanying notes. The balance sheet and profit and loss account are similar to those in standard accounts, but they are presented in a simplified format. For example, the balance sheet only needs to include two categories of assets (tangible and intangible) and two categories of liabilities (current and non-current), while the profit and loss account only needs to show turnover and a single line for expenses. The accompanying notes provide additional information about the figures in the accounts, such as details of any fixed assets or investments, and any transactions with directors or related parties. However, these notes are also simplified, and there are fewer disclosures required than in standard accounts. Even though micro entity accounts are simplified, you still need to keep detailed records of all your financial transactions. This can include invoices, receipts, bank statements, and any other relevant documents.

4. Submit Your Accounts: Submit your micro entity accounts to Companies House within nine months of the end of your financial year. Your balance sheet should list all your assets, liabilities, and equity. This will give you an overview of your financial position at a specific point in time.

In conclusion, micro entity accounts can provide a simple and cost-effective way for small business owners to meet their accounting obligations. By taking advantage of this option, you can save time and money, while still complying with the law. If you need more information about micro entity accounts or help preparing your accounts, consider speaking with us.