This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand when a company qualifies as a micro-entity under the Companies Act 2006.

Members may also wish to refer to the following related helpsheets:

• Is a company or group small?
• Ineligible companies and groups
• Calculating employee numbers
• Small and micro company size calculator

When a company is assessing whether it is subject to the micro-entities regime, it must have regard to s384A and s384B of the Companies Act 2006. The micro-entities regime applies to a company for a financial year in which:

• The company qualifies as a micro-entity; and
• Is not excluded from the micro-entities regime.

To qualify as a micro-entity, in size, companies must be assessed against the thresholds in the table below.

First year of the company

If it is the first year of the company, it will qualify as micro under s384A of the Companies Act 2006 if it satisfies two or more of the thresholds in the above table.

Subsequent year(s) of the company

If it is not the first year of the company, a ‘two year rule’ applies by virtue of s384A(3) which states that in relation to a subsequent financial year (i.e. not the first year of the company), where on its balance sheet date a company meets or ceases to meet the qualifying conditions, that affects its qualification as a micro-entity only if it occurs in two consecutive financial years. As such a company may have to track back over several years of history to determine its size (the Small and micro company size calculator may be of assistance).

Parent company

If the company is a parent company, in addition to meeting the above requirements, it will only be able to qualify as a micro-entity (per s384A(8) if the group headed by the company qualifies as a small group as determined by s383(2) to (7) (see Is a company or group small? helpsheet).

Even if a company meets the size criteria for qualification as a micro-entity, there are a number of exclusions from the micro entity regime (terms in bold are defined in the Glossary section at the end of this helpsheet).

Group accounts

If the entity is a parent entity which prepares group accounts, or is not a parent but its accounts are included in consolidated group accounts for that year, then it is not able to take advantage of the micro-entity provisions (Companies Act 2006 s384B).

Exclusions

Under the Companies Act 2006 s384B(1), the micro-entity provisions do not apply in relation to a company’s accounts for a particular financial year if the company was at any time within that year:

(a) a company excluded from the small companies regime by virtue of s384 (see Ineligible companies and groups helpsheet),
(b) an investment undertaking as defined in Article 2(14) of Directive 2013/34/EU of 26 June 2013 on the annual financial statements etc of certain types of undertakings,
(c) a financial holding undertaking as defined in Article 2(15) of that Directive,
(d) a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, other than one listed in Article 2 of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and investment firms,
(e) an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts of insurance undertakings, or
(f) a charity.

Brexit

For periods commencing after the end of the transition period (31 December 2020) s384B(1) of the Companies Act 2006 is changed such that the micro-entity provisions do not apply in relation to a company’s accounts for a particular financial year if the company at any time within that year:

(a) was a company excluded from the small companies regime by virtue of s384 (see Ineligible companies and groups helpsheet),
(b) would have been an investment undertaking as defined in Article 2(14) of Directive 2013/34/EU of 26 June 2013 on the annual financial statements etc of certain types of undertakings were the United Kingdom a member State,
(c) would have been a financial holding undertaking as defined in Article 2(15) of that Directive were the United Kingdom a member State,
(d) a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation,
(e) would have been an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts of insurance undertakings were the United Kingdom a member State, or
(f) was a charity.

If the company qualifies as a micro-entity, unless there is anything specifically in the articles or other governing documents of the company, it is a choice of the directors (not the accountant) as to whether the micro-entity regime is applied.

The directors should, however, consider whether the accounts provide sufficient information to users of the accounts and whether the use of the micro-entity provisions may have an adverse impact on credit ratings or cause difficulties in providing the information required by lenders.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.

The below list sets out key definitions for terminology within s384B of the Companies Act 2006. Where there is doubt whether an entity is captured by a financial services definition, a financial services expert should be consulted.

Credit institution

Credit institution means an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.

(Article 4(1)(1) of Regulation (EU) No. 575/2013)

Financial holding undertaking

Financial holding undertakings means undertakings the sole object of which is to acquire holdings in other undertakings and to manage such holdings and turn them to profit, without involving themselves directly or indirectly in the management of those undertakings, without prejudice to their rights as shareholders.

(Article 2(15) of Directive 2013/34/EU)

Insurance undertaking

Insurance undertaking means:

(a) undertakings within the meaning of Article 1 of Directive 73/239/EEC, excluding those mutual associations which are excluded from the scope of that Directive by virtue of Article 3 thereof but including those bodies referred to in Article 4 (a), (b), (c) and (e) thereof except where their activity does not consist wholly or mainly in carrying on insurance business;
(b) undertakings within the meaning of Article 1 of Directive 79/267/EEC, excluding those bodies and mutual associations referred to in Articles 2 (2) and (3) and 3 of that Directive; or
(c) undertakings carrying on reinsurance business.

(Article 2(1) of Council Directive 91/674/EEC)

Investment undertaking

Investment undertaking means:

(a) undertakings the sole object of which is to invest their funds in various securities, real property and other assets, with the sole aim of spreading investment risks and giving their shareholders the benefit of the results of the management of their assets,
(b) undertakings associated with investment undertakings with fixed capital, if the sole object of those associated undertakings is to acquire fully paid shares issued by those investment undertakings without prejudice to point (h) of Article 22(1) of Directive 2012/30/EU;

(Article 2(14) of Directive 2013/34/EU)