A guide to filing micro entity accounts

They say two things in life are guaranteed; death and taxes. Well, if you’re a limited company in the UK then you can add a third element to that - accounts. If you do business in the UK, whatever the size of your operation and whatever your turnover, filing company accounts each year is mandatory.

So, if you’re a small business without an in-house finance team or accountant, how can you go about navigating the complex world of balance sheets and directors' declarations that are part of preparing company accounts?

Read on to enjoy our guide to the whole process - demystifying this often hard-to-follow world.

The background

What is a micro entity?

A micro entity is, put simply, a small business. To qualify as a micro entity, your business must meet at least two of the following criteria:

• An annual turnover of £632,000 or less
• A balance sheet total of £316,000 or less
• An average of 10 employees or fewer throughout the year

If you are the owner of a small business, then the chances are your company is a micro entity, given that there are 5.4 million of them in the UK, making up 96% of all businesses.

What is Companies House and who has to file with them?

Companies House is a government executive agency that falls under the remit of the Department for Business, Energy & Industrial Strategy and has the function of registering and dissolving all limited companies in the UK.

In essence, Companies House holds the details of all limited companies in the UK, along with public records of their accounts and directors. Every year, each company in the UK (including dormant businesses) must file their accounts with Companies House or risk being fined.

It is worth noting that Companies House is not the same as, or part of, HM Revenue and Customs (HMRC) who oversee taxation. The two bodies are separate and do not overlap in their functions. As a business, you will have to submit a tax return to HMRC separately.

What are simplified accounts?

If your business qualifies as a micro entity, then you may be eligible to submit simplified accounts that are quicker and easier to create than the full accounts that larger businesses must file.

Crucially, while most micro entities can file simplified accounts, there are some exceptions. You cannot file abridged accounts if your business is any of the following:

• A limited liability partnership (LLP)
• A public limited company (PLC)
• A financial institution such as a bank or a mortgage lender
• A not-for-profit organisation

What are the benefits?

For small businesses, the benefits of simplified micro entity accounts are primarily that the process is significantly simpler and shorter than with preparing full company accounts. Micro entities do not have to:

• Prepare a directors’ report
• Prepare profit and loss accounts for the public record (though you should always keep your own profit and loss accounts)
• Provide any detailed notes about the company’s creditors and debtors

Sounds ideal, right? There are some reasons you might not want to file simplified accounts, even if you do qualify as a micro entity. If you are at the larger end of the micro entity scale and are growing rapidly, then you might reasonably assume that by the following year, you will no longer qualify as a micro entity. At this point, you will have to file full accounts and this process becomes harder when you do not have the full accounts for the previous year.

For most very small businesses, however, micro entity accounts are a welcome way in which to cut down on the time and expense of preparing complex documents.

The step-by-step guide

So, how do you actually go about filing your company’s micro entity abridged accounts? While the process is simpler than submitting full accounts, it can still be relatively complex.

If your business sits at the larger end of the spectrum of micro entities, then you may want to consider hiring an accountant to help you prepare your documents. However, for many small businesses filing yourself is perfectly achievable.

Step 1 - Prepare your documents

As mentioned above, as a micro entity, it is likely you qualify to file significantly simplified accounts. The principle part of your submission is a simplified balance sheet which will include the following for both the end of the accounting period in question and the end of the previous accounting period:

1. Fixed assets - these are assets that will continue to benefit your business in the long term, beyond the accounting period in questions.
2. Current assets - this includes actual money held by the business or assets that can quickly be converted into money such as stock, liquid assets and stock inventory.
3. Prepayments and accrued income - this covers advance payments and sales that your business has not yet recorded in its books. For micro-entity accounts this might include the cost of raw materials and consumables, value adjustments, staff costs and tax.
4. Creditors: Amounts falling due within one year - this is simply anything owed in the short term, up to 12 months from the end of the accounting year.
5. Net current assets - this is the value of your current assets (no. 2 in this list) minus prepayments and accrued income (no. 3) and creditors: amounts due within one year (no. 4).
6. Total assets less current liabilities - quite simply this value is your business’ total assets less your total liabilities.
7. Creditors: Amounts falling due after more than one year - refers to any amounts that are either payable or repayable by the business in the longer-term, after more than a year from the end of the accounting period.
8. Net assets - your business/ total assets minus your total liabilities.

As a micro entity, you will not need to include any information about creditors or debtors, but you will need to include footnotes in your filing and the signature of one or more of the company’s directors. Finally, it must include a statement to confirm that the balance sheet has been prepared in line with micro entity provisions, such as:

These accounts have been prepared in accordance with the micro entity provisions in the Companies Act 2006, Pt. 15 and FRS 105 the Financial Reporting Standard applicable to the micro-entities regime.

Followed by:

These accounts have been delivered in accordance with the provisions applicable to companies subject to the small companies’ regime.

You have the option to submit a profit and loss account, but this is not a requirement. You can also choose to submit an auditor’s report, but almost all micro entities are actually exempt from being audited under the Companies Act 2006 so this isn’t required by law. Similarly, for micro entities, a directors report is optional and you are free to save time and effort by not submitting one.

For micro entities choosing to file only a balance sheet and the footnotes sections, Accountstemplate.co.uk have prepared a useful example submission so you can see how it should look.

Step 2 - Log into Companies House

Next, you’ll need to sign into the Companies House web filing service. To do this you’ll need both your Government Gateway ID and your six-character Companies House authentication code.

If this is your first time filing company accounts then all you need to do to get your authentication code is register your email address and password with Companies House. Then, simply:

• Select ‘Request an authentication code’
• Enter your company registration number
• Select ‘Request code’

Unfortunately, for security reasons, you cannot be told your authentication code by email or over the phone. A letter with your code will be sent to the address where your business is registered.

Step 3 - File your accounts before the deadline

The deadline for filing company accounts could be different for each business and is calculated based on your company’s Accounting Reference Date (ARD).

For a new business, your first ARD will be the anniversary of the last day in the month the company was incorporated. The filing deadline for your first accounts will then be 9 months on from your ARD. For example:

• Your business was incorporated on 16th April 2020
• The last day of the month is 30th April 2020
• Your Accounting Reference Date is 30th April 2021
• Your accounts deadline will be 30th January 2022

For existing businesses, your ARD will be the anniversary of the day after the previous financial year ended. It may sound complicated but in simple terms, you will have 9 months after the end of each accounting period in which to file your micro entity accounts with Companies House.

You can choose to register for an email reminder service from Companies House who will message you 4 weeks before your deadline to remind you to file your accounts.

You may also like:

• What are your responsibilities as a company director?
• Do I need an accountant?
• A guide to keeping business records