FRS 105 vs FRS 102 are the two primary UK accounting frameworks used by smaller businesses. FRS 105 applies strictly to micro-entities with an annual turnover up to £1 million, while FRS 102 Section 1A handles small businesses with a turnover up to £15 million, and full FRS 102 covers larger medium-sized firms up to a £54 million turnover threshold.
If you qualify for FRS 105, you can still choose to step up to FRS 102. Companies do this if they want to show a more comprehensive financial position.
Let us start with the basics so you can understand the difference between FRS 105 vs FRS 102 and decide what fits your company setup!
What Is FRS 105?
FRS 105 stands for the Financial Reporting Standard and is designed specifically for the smallest businesses in the UK, legally known as micro-entities.
To use FRS 105, your business must meet at least two of these criteria for two consecutive years:
- Annual turnover of £1 million or less
- Balance sheet total of £500,000 or less
- Average number of employees: 10 or fewer
The main perk here is simplicity. You do not have to calculate deferred tax and track complex fair-value changes. You also do not have to write pages of footnote disclosures. Moreover, your public filings show very little detail. This helps you protect your business privacy.
What Is FRS 102 (and what’s Section 1A)?
FRS 102 is the main financial reporting standard used by most small and medium-sized companies across the UK. But within FRS 102, there is a specific section that is built just for small companies called Section 1A.
This is the version most small UK businesses that don’t qualify for (or don’t choose) FRS 105 will actually use.
Your company falls under small company rules if it meets at least two of these conditions:
- Turnover: Up to £15 million
- Balance sheet total: Up to £7.5 million
- Average number of employees: 50 or fewer.
Remember that when comparing FRS 105 vs FRS 102, FRS 102 Section 1A requires extra work. For example, recording deferred tax, detailing related-party transactions, and showing asset revaluations.
But this added detail can be a real benefit if you plan to pitch to investors or secure bank financing.
FRS 105 vs FRS 102: The Size Thresholds Summary
As discussed, companies must meet at least 2 out of 3 criteria to qualify for the micro-entity regime (FRS 105) or small company regime (FRS 102 Section 1A):
| Category | Turnover | Balance sheet total | Employees |
| Micro-entity (FRS 105) | £1 million or less | £500,000 or less | 10 or fewer |
| Small company (FRS 102, Section 1A) | £15 million or less | £7.5 million or less | 50 or fewer |
Remember that every micro entity also meets the small company thresholds.
So if you qualify as micro, you’re not locked into FRS 105. You can choose FRS 102 Section 1A instead if it suits you better.
It’s not the other way round, though. A company that’s small but not micro can only use FRS 102, not FRS 105.
FRS 105 vs FRS 102: Key Differences in Accounting Treatments
The way you calculate your final profit figures changes drastically depending on FRS 105 vs FRS 102:
- Deferred Tax: FRS 102 makes calculating deferred tax mandatory when you have timing differences between your accounts and your HMRC tax returns. FRS 105 bans deferred tax altogether.
- Investment Property: Under FRS 102, any investment properties must be adjusted to market value every single year, with gains or losses hitting your profit metrics. Under FRS 105, you leave it at original cost.
- Filing and Disclosures: FRS 105 requires very minimal disclosure notes overall. Conversely, FRS 102 Section 1A mandates more thorough disclosures when preparing your accounts, including explicit statements regarding your dividends and going concern status to ensure a true and fair view.
FRS 105 vs FRS 102: How to Choose for Your Company
If you run a small consultancy, a trading business, or a localised service business with no property holdings, FRS 105 keeps life quiet and simple. But if you hold assets, lease large premises, or plan to raise funding from angel investors, opting into FRS 102 Section 1A usually makes sense.
Here’s how to choose FRS 105 vs FRS 102 for your company:
When FRS 105 makes sense
- You’re a small, straightforward business with no investment property and no complex assets, and you want to keep any commercial or vehicle leases entirely off your balance sheet.
- You don’t need to show detailed accounts to a bank or investor any time soon
- You just want the minimum compliance burden and the lowest accountancy fees
- Your company has no plans to grow significantly beyond the micro threshold in the near future
When FRS 102 is the better fit
- You own or plan to hold investment property and want the option to revalue it
- You’re applying for a mortgage or business loan and need fuller accounts to support the application
- You’re looking for external investment and investors want proper disclosure
- You have more complex transactions, like intercompany loans, deferred tax positions, or share-based payments
- You want your public credit or filing history to reflect a detailed layout of assets, share classes, and structural disclosures rather than a basic micro-entity format
Who Can’t Use FRS 105?
Not every company that fits the size thresholds is actually allowed to use FRS 105. You’re excluded from using it if your company is:
- A public limited company (PLC)
- A charity
- An LLP (limited liability partnership) subject to certain conditions
- A financial institution, insurer, or e-money issuer type business
- Part of a group whose overall figures exceed the micro-entity thresholds, even if your individual company doesn’t
- A company that wants to revalue assets or use fair value accounting anywhere in its accounts
If any of these apply, you’ll need to use FRS 102 regardless of how small your turnover looks.
FRS 105 vs FRS 102: What’s Changing For 2026/27?
Following a comprehensive periodic review by regulators, the way we handle leases has completely transformed.
Most of these changes take effect for accounting periods beginning on or after 1 January 2026, with early adoption allowed if you want to get ahead of it.
The New FRS 102 Lease Rules
If you use FRS 102, the old boundary between operating leases and finance leases is gone. If you lease a shop, an office space, or equipment, you now have to bring those contracts directly onto your balance sheet (unless a relevant exemption applies, such as for qualifying short-term leases or leases of low-value assets).
You must calculate a “right-of-use” asset and a matching lease liability.
This expands your balance sheet and alters key gearing or leverage ratios that your bank looks at when you want a commercial loan.
The FRS 105 Lease Rules
Micro-entities using FRS 105 are completely exempt from these complicated lease rules. If you rent an office or a van under FRS 105, you keep doing what you have always done.
You just record the monthly rental invoices straight as an expense into your profit and loss account.
No complex balance sheet calculations required.
The Bottom Line
So, FRS 105 vs FRS 102, which one’s right for you? Honestly, there’s no single correct answer.
It genuinely depends on what your company owns, who’s looking at your accounts, and where you’re planning to take the business over the next few years.
FRS 105 works brilliantly if you want minimal admin and lower fees, while FRS 102 Section 1A delivers the depth needed for asset-heavy or growing firms.
How Accotax Can Help
Choosing between FRS 105 vs FRS 102 is not always as straightforward as checking your turnover and picking the simpler option.
Accotax can review your company’s size, accounting period, and the type of transactions it has before preparing the accounts under the appropriate framework.
We can also deal with the day-to-day bookkeeping and year-end adjustments that feed into the statutory accounts, so figures are properly organised before the accounts are prepared.
If you want to make sure your financial statements are working as hard as you are, get in touch with us today!
Disclaimer: All the information provided in this article on “Small Company Accounts Explained: FRS 105 vs FRS 102 (2026/27 UK Guide) “, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
