A micro company (or micro-entity) is a very small UK limited company that meets at least two of the following updated criteria for the financial year: an annual turnover of £1 million or less, a balance sheet total of £500,000 or less, and an average of 10 employees or fewer.
This guide walks you through:
- What a micro company actually is,
- The exact thresholds for 2026/27,
- What accounts you need to file
- And much more…
Let’s get into it!
What Is a Micro Company?
A micro company (micro-entity) is a company that qualifies for the micro-entities regime under the Companies Act 2006. Micro-entity is the more official term Companies House uses for it.
It is one of four categories, sitting below small, medium, and large.
This classification only affects your accounts and reporting obligations. It doesn’t create a separate legal entity type. And it also doesn’t change your corporation tax rate or how HMRC treats your company.
A micro company pays corporation tax the same way any other limited company does. What basically changes is how much detail you have to prepare and hand over to Companies House each year.
What Are Micro Company Thresholds for 2026/27?
For the 2026/27 financial year, a UK company is classified as a micro-entity if it meets at least two of the following three criteria for two consecutive years:
- Annual Turnover: £1 million or less
- Balance Sheet Total (Assets): £500,000 or less
- Average Employees: 10 or fewer
Example:
Say your company turns over £900,000 and has 8 employees, but your balance sheet total sits at £550,000, above the micro limit. You still qualify as a micro company. This is because you only need to hit two out of the three tests, not all three.
What Is The Two-Year Rule?
You do not lose your micro company status the exact moment you exceed the limits for one year. In order to gain or lose micro-entity status, you must meet (or fail to meet) the criteria for two consecutive financial years. The only exception is your company’s very first financial year. If you meet two of the three criteria in year one, you qualify right away.
Who CANNOT Be a Micro Company?
In the UK, certain companies are legally excluded from using the micro-entity accounting regime. Yes, this is regardless of how small they are. So just meeting the numbers is not the whole story.
Regardless of size, the following entities cannot use the micro-entities regime:
- Public limited companies (PLCs)
- Companies in certain regulated sectors, such as insurance and some financial services
- Companies that are part of an ineligible group structure
- Charitable companies (these follow charity accounting rules instead)
What Accounts Does A Micro Company Need To File?
As a micro-company, you must file annual accounts with Companies House and a Company Tax Return (CT600) with HMRC.
What to File with Companies House
Micro-entities can use the simplified FRS 105 accounting standard. The filing typically consists of:
- A condensed balance sheet with minimal line items.
- Minimal footnotes (such as advances to directors and average employees).
- No Directors’ Report required.
- No Profit and Loss Account included on the public record (though micro-entities will be legally mandated to file a Profit and Loss account with Companies House from April 2028, they can choose to keep it hidden from the public register).
What to File with HMRC
While you can file simplified accounts to Companies House, HMRC requires a full profit and loss account as part of your Corporation Tax return.
This full return allows HMRC to calculate your Corporation Tax bill.
Micro Company vs Small Company vs Sole Trader
People genuinely mix these up. So here is the difference between these:
| Feature | Micro company | Small company | Sole trader |
| Legal structure | Limited company | Limited company | Not incorporated |
| Files at Companies House | Yes, simplified | Yes, more detail required | No |
| Audit exemption | Usually yes | Usually yes | Not applicable |
| Turnover limit | £1m | £15m | No limit |
| Public disclosure | Minimal | Moderate | None |
| Corporation Tax | Yes | Yes | No, pays income tax instead |
A sole trader is not a size category at all. In fact, it is a completely different legal setup where you and the business are the same entity in the eyes of the law.
What Are The Advantages of Being a Micro Company?
For many new businesses, qualifying as a micro company makes life much easier. Some of the main advantages include:
- Most micro companies qualify for audit exemption, provided they are not otherwise required to have an audit.
- Competitors cannot see your net sales or profit margins publicly
- Only a tiny, two-page summary balance sheet goes on public record
- Legal freedom from writing long business or directors’ reports
- You use a much easier and also shorter set of bookkeeping rules
- Make business decisions more quickly due to a simplified management structure.
- Low workforce costs due to having ten or fewer employees
What Are The Disadvantages of Being a Micro Company?
Although there are clear benefits of a micro company , there are also a few limitations.
- Harder to get big bank loans because your public records look too empty
- Big investors might avoid you since they cannot see your full financial history
- Corporate clients may think your business looks too small or unprofessional
- You still have to send full financial details to HMRC for your taxes
- You cannot use advanced accounting options to value properties or assets
- Suppliers might give you smaller credit limits because they do not trust your cash flow
- Having a tiny team means everything stops if one person gets sick
Important Changes to Companies House Filing Rules in 2026/27
For micro companies, the UK government has officially delayed the implementation of major Companies House filing reforms to April 1, 2028. So as we are in 2026, there is no immediate pressure. But still, it is important for businesses to prepare for when these rules come into effect.
Significant changes confirmed for when the reforms take effect include:
- Software-Only Filing: The traditional paper and web-based Companies House filing routes will be permanently closed. All micro companies must file their annual accounts via approved commercial software in iXBRL format.
- Mandatory Profit and Loss (P&L): Micro-entities will be required to file a Profit and Loss account along with their balance sheet. However, micro companies will be able to opt out of having this P&L data publicly displayed on the register.
- Removal of Abridged Accounts: The option to prepare and file simplified “abridged” accounts will be entirely abolished.
- Restrictions on Accounting Periods: Companies will be limited in how often they can shorten their accounting reference period. A business reason will be required if they want to shorten it more than once within a 5-year span.
- Claiming Audit Exemption: Directors will face stricter eligibility requirements when claiming audit exemptions on the balance sheet
Staying on top of these shifting deadlines and legal changes can be tricky. Using a dedicated accounting practice management system will help accounting practice managers and business owners to keep track of filing dates, document collection, and compliance steps. This way nothing can get missed.
Does a Micro Company Still Pay Corporation Tax?
Yes. Being a micro company does not mean paying less Corporation Tax. Corporation Tax is based on your company’s taxable profits, not its accounting category.
For the 2026/27 tax year, the main Corporation Tax rules continue to work broadly like this:
- Companies with profits of £50,000 or less may qualify for the 19% small profits rate.
- Companies with profits over £250,000 generally pay 25% main rate Corporation Tax.
- Companies between the limits may receive Marginal Relief. This scales your effective rate smoothly between the two thresholds.
These thresholds may be reduced if your company has associated companies. This system applies regardless of whether your business is a micro company, a small company or a much larger organisation.
What Are The Common Myths About Micro Companies?
There are plenty of misunderstandings online regarding a micro company. Let’s clear up a few.
| Myth | Reality |
| A micro company pays less Corporation Tax. | ❌ No. Corporation Tax depends on taxable profits. |
| A micro company does not need an accountant. | ❌ Not legally, but many choose one for peace of mind. |
| A micro company does not file accounts. | ❌ Annual accounts still need to be filed. |
| A micro company cannot employ staff. | ❌ It can, provided it still meets the qualifying limits. |
| Every small business is a micro company. | ❌ Only businesses meeting the legal criteria qualify. |
Can a Sole Trader Be Classified as a Micro Company?
No. A sole trader cannot be classified as a micro company. This is because the concept of micro companies is applied exclusively to incorporated businesses like private limited companies. If you operate as a sole trader, you have to file a Self Assessment tax return rather than corporate accounts for Companies House. However, if your sole trader business grows, then you can definitely transition to a micro limited company for better tax planning.
Can a Micro Company Have Employees?
Yes, a micro company can employ staff. But the average number of employees should not exceed 10 throughout the financial year. Employees must be managed through an official PAYE scheme. Also, they should be managed with Workplace Pensions set up if staff meet auto-enrolment criteria.
Do Micro Companies Need to Register for VAT?
Micro company status does not exempt you from VAT. You must register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period, or if you expect your turnover to exceed £90,000 in the next 30 days alone. You can also choose to register voluntarily if your business sells to other VAT-registered businesses. This allows you to reclaim VAT on purchases.
What Accounting Standard Applies to a Micro Company?
Micro companies in the UK prepare financial reports under FRS 105 (Financial Reporting Standard applicable to the Micro-entities Regime). FRS 105 is a simplified standard designed to minimise financial disclosures and streamline year-end reporting.
Can a Foreign National Register a UK Micro Company?
Yes, anyone of any nationality can incorporate a UK micro company. You do not need to live in the UK to be a director or shareholder. However, your company must maintain an official registered office address within the UK.
Quick Summary – Micro Companies
- A micro company is the smallest size category under the Companies Act 2006, decided by turnover, balance sheet total and employee numbers
- You need to meet at least two of three thresholds: turnover £1m or less, balance sheet £500,000 or less, 10 employees or fewer
- Micro companies can prepare simplified statutory accounts and usually qualify for an audit exemption
- They must still file accounts with Companies House.
- Corporation Tax rules are the same as for other limited companies.
- Bigger Companies House changes are coming, including profit and loss disclosure and software only filing
The Bottom Line
So, what is a micro company at the end of the day? It’s simply the label for the smallest and least complex limited companies in the UK. Qualifying as a micro company doesn’t change your tax bill. But it does mean less paperwork lands on the public register each year, and generally lower accountancy costs to prepare it.
With Companies House tightening things up over the next couple of years, now is a sensible time to check exactly where your company sits. Keep your bookkeeping tidy and seek expert advice when your business starts to grow.
How Accotax Can Help
Not sure if your company qualifies as a micro company? That’s something we help with every day.
At Accotax, we can check your eligibility, prepare your statutory accounts, submit your Corporation Tax Return and keep you on top of Companies House and HMRC deadlines.
If you’re not sure which category your company falls into, or you want a second opinion before your next filing deadline, get in touch and we’ll take a proper look at your numbers.
Disclaimer: All the information provided in this article on “What Is a Micro Company? UK Guide for 2026/27 Rules, Accounts and Tax“, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
