A company meets the FRS 105 thresholds if it satisfies two of three tests for financial years beginning on or after 6 April 2025. Turnover must be no more than £1 million, the balance sheet total no more than £500,000, and the average headcount no more than 10. Meeting them makes a client eligible for the micro-entities regime. It does not make FRS 105 the right answer for that client.

Choosing between the two frameworks takes about five minutes. Getting it wrong costs a great deal more. The bill usually arrives in January, when someone notices that a client carrying an investment property at valuation has been reported under a standard that does not permit valuations. The limits moved on 6 April 2025, and the explanatory memorandum to the amending regulations estimates that around 113,000 companies and LLPs will move from the small category into the micro-entity one as a result. For most practices that is a real slice of the client list being reassessed at once, usually by whoever picks up each job.

What is FRS 105?

FRS 105 is the UK financial reporting standard for micro-entities. It requires a balance sheet and a profit and loss account, with a small number of disclosures given at the foot of the balance sheet. It also removes most of the recognition and measurement choices available elsewhere in UK GAAP. Accounts prepared under it are presumed in law to give a true and fair view.

That presumption is the point of the regime. A micro-entity does not have to judge whether its minimal disclosures are sufficient, because the legislation settles the question in advance. The trade-off is that the simplification stops being optional once you are inside it. FRS 105 is a single package, and a client cannot take the reduced disclosures while keeping a measurement policy the standard has removed.

The standard sits alongside FRS 102, which carries the reduced disclosure regime for small entities in its Section 1A. Since periods commencing on or after 1 January 2016, following an FRC amendment, FRS 105 has also been available to LLPs and qualifying partnerships that meet the micro-entity conditions. So the decision described here is not confined to limited companies, which surprises people more often than it should.

What are the FRS 105 thresholds?

The FRS 105 thresholds are turnover of no more than £1 million, a balance sheet total of no more than £500,000, and an average headcount of no more than 10. Any two of the three are enough to qualify.

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 came into force on 6 April 2025 and raised the money limits for both micro-entities and small companies. The employee counts were left alone.

Two of the three tests is the bar, and in most cases the company has to have met them in the preceding year as well. That second condition would ordinarily have created a two-year wait after any uplift, so the 2024 Regulations carry a transitional provision to remove it. When qualification is considered by reference to a previous financial year, the explanatory memorandum confirms, the new limits are "treated as having applied in those previous years."

A client with £900,000 of turnover in both 2025 and 2026 is therefore a micro-entity for the 2026 year end. It sat outside the old £632,000 limit in both of those years. Newly incorporated companies test the first year on its own.

What are the FRS 105 criteria beyond size?

Size is a gate rather than the whole test. Section 384B of the Companies Act 2006 shuts several categories of company out of the micro-entities regime whatever their turnover. Charities are excluded, so are investment undertakings and financial holding undertakings, and so are credit institutions and insurance undertakings. Anything already outside the small companies regime is out on the same basis.

Group membership is the exclusion that catches practices out most often. A parent preparing group accounts cannot use FRS 105, and neither can a subsidiary included in consolidated accounts. A dormant subsidiary sitting inside a group that consolidates is excluded however small it is, which is not visible from its own balance sheet.

Two further points are worth holding on to. The regime is optional. A company that meets every FRS 105 criterion may still prepare its accounts under FRS 102 Section 1A where that serves it better, and plenty should. Eligibility for the micro-entities regime is also a separate question from audit exemption, which runs on its own conditions. A client can qualify for one without the other, and treating them as a single test is how a group company ends up with the wrong framework and an audit nobody scoped.

What does FRS 105 let you leave out, and what does it take away?

FRS 105 removes the cash flow statement, the statement of changes in equity and the great majority of notes. What remains is two primary statements plus disclosure of items such as advances to directors and financial commitments, given at the foot of the balance sheet rather than in a notes section.

The reductions on the measurement side are the ones that decide the framework. FRS 105 does not permit revaluation of tangible fixed assets, and it rules out fair value accounting for investment property and financial instruments. Deferred tax is not recognised at all. Development and borrowing costs are expensed rather than capitalised, intangibles acquired in a business combination are not separated from goodwill, and goodwill itself is amortised. The balance sheet formats are fixed rather than adaptable.

Steve Collings, writing when the regime was introduced, made the point that assets carried at revaluation or at fair value "have to be restated to cost" on adoption. For an investment property that means depreciation running from the date of initial acquisition. Where a client's only substantial asset is the building it trades from, that single consequence usually settles the decision before anyone gets to the disclosure savings.

What is the difference between FRS 102 and FRS 105?

FRS 102 Section 1A gives small entities a reduced disclosure regime while keeping the measurement rules of full FRS 102, including fair value measurement and revaluation, along with deferred tax. FRS 105 strips those out and fixes the formats, in exchange for a legal presumption that the accounts give a true and fair view.

What the table understates is what happens when a practice runs both frameworks across several hundred clients. The cost rarely lands on any single job. It shows up in keeping formats and disclosure defaults consistent when four people are preparing accounts four slightly different ways, which is the same problem an end to end accounts workflow is meant to take off the reviewer. Active's accounts production module covers FRS 102 1A, 105 & Dormant Company Accounts, so the framework is a setting on the job rather than a separate way of working.

When is FRS 105 the wrong choice even though the client qualifies?

The clearest case against FRS 105 is a client holding property. Investment property has to come off fair value and back to cost less depreciation, which often reduces net assets sharply and can turn a comfortable balance sheet into a technically insolvent one. Owner-managed companies that have revalued their trading premises hit the same wall.

Lending is the second case. A bank or a prospective buyer reading a micro-entity balance sheet gets very little, and the gap tends to be filled by a request for management information the client then has to produce anyway. The disclosure you saved is handed over a month later in a less useful form.

Growth is the third. A client sitting just inside the FRS 105 thresholds will breach them, and moving framework in either direction carries a transition cost. Where a company is expected to cross within a year or two, staying on FRS 102 Section 1A avoids paying that cost twice.

Deferred tax deserves its own mention. FRS 105 does not recognise it at all, so a company with substantial capital allowances timing differences shows a position that will not match what a reader expects. That is entirely defensible under the regime and still worth raising with the client before you file.

Can I change from FRS 102 to FRS 105?

Yes, provided the company meets the FRS 105 thresholds and the eligibility conditions in the year concerned. The switch is a change of financial reporting framework rather than a change of accounting policy, so it is handled under the transition requirements of FRS 105 rather than as a prior period adjustment.

The mechanics are the part to plan for. You restate the opening balance sheet at the date of transition, reversing anything the standard does not permit. In most real cases that means unwinding revaluations and fair values, with deferred tax balances and capitalised development costs going the same way. Comparatives are restated on the same basis.

Moving the other way is equally available, and it becomes compulsory once a client stops qualifying. Neither direction is difficult on a single job. Both are tedious across a portfolio, which is a decent argument for making the call deliberately rather than letting a client drift over a limit and discovering it at the year end.

One change is already scheduled. The FRC's Periodic Review 2024 applies to accounting periods beginning on or after 1 January 2026 and brings a five-step revenue recognition model into both FRS 102 and FRS 105. The new on-balance-sheet lease model does not extend to FRS 105, so micro-entities carry on distinguishing operating leases from finance leases.

The framework decision is worth making once and recording clearly, then revisiting only when something in the client's position actually changes. If you would rather that decision drove the accounts automatically instead of being re-remembered every year, that is the part Active is built to carry, and you can sign up and try it with your own client data before committing anything to it.

Frequently asked questions

Do the FRS 105 thresholds apply to LLPs?

Yes. The micro-entities regime was extended to LLPs and qualifying partnerships for periods commencing on or after 1 January 2016, and the FRC amended FRS 105 to accommodate them. The size limits are the same as for companies, and the 6 April 2025 uplift applies to LLPs on the same basis.

What is changing for FRS 105 from 1 January 2026?

The FRC's Periodic Review 2024 introduces a five-step revenue recognition model into FRS 105 for accounting periods beginning on or after 1 January 2026. Early application is permitted where the amendments are adopted together. The revised lease accounting introduced into FRS 102 does not apply to FRS 105.

Can a client that qualifies as a micro-entity still use FRS 102 Section 1A?

Yes. FRS 105 is optional. A qualifying micro-entity may prepare its accounts under FRS 102 Section 1A instead, and that is often the better call where the company holds investment property, expects to seek finance, or is likely to outgrow the micro-entity limits within a year or two.

What do micro-entities have to file at Companies House?

A micro-entity currently files a balance sheet only and can omit the profit and loss account from its Companies House filing altogether. From April 2028, confirmed by the government in June 2026, small and micro companies must file a profit and loss account, though a new opt-out will let them keep it off the public register.

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