A Beginners Guide to Micro Entity Accounts
Producing a set of Micro-entity accounts; just like any other financial statement, can seem quite daunting and complex, so it’s important to understand exactly what you need to do.
In this blog post, we’ll look at the basics of micro-entity accounts and provide some tips on how to make sure you’re getting the most out of your company.
What are micro-entity accounts?
Micro-entity accounts are a smaller and simplified form of accounting, which has fewer requirements and a reduced level of complexity, when compared to other accounting methods.
Common features of micro-entity accounting include reduced filing and disclosure requirements, as well as lower compliance costs. Micro-entity accounts are usually suitable for companies with up to three years of trading history and a turnover of less than £300,000.
For businesses that fall into this category, micro-entity accounting can be a great way to save on resources and manage finances efficiently.
It simplifies financial reporting and reduces the burden of financial compliance requirements.
Micro-entity accounts are designed for small businesses and sole traders with a low turnover. This type of account provides a simplified set of financial disclosure requirements, designed to make financial reporting easier to understand and prepare.
Additionally, micro-entity accounts are subject to fewer compliance requirements, such as audits, which can help businesses to save time and money.
Is my business a micro-entity?
To be classed as a micro-entity, your business must meet three requirements:
- Your total turnover must not exceed £632,000.
- You must not have more than 10 employees.
- £316,000 or less on its balance sheet
If 2 or more of the above criteria fits your business then you will be classed as a micro-entity.
How to Establish Micro-Entity Status
To establish micro-entity status, companies must demonstrate that they meet 2 or more of the qualifying criteria.
Micro-entity status allows your company to produce specialised micro-entity accounts which are simpler and less time consuming to compile than standard accounts.
The requirements also mean that companies must be careful to monitor their income and expenditure to ensure they remain within the upper limit of the turnover threshold.
Companies must provide evidence of their status in the form of annual financial statements or company tax returns to be eligible for the reduced obligations associated with micro-entity accounts.
All in all, micro-entity accounts can offer a great amount of financial and legal benefits to small business owners, but companies must be sure of their status as a micro-entity according to UK law.
This means they must not be part of any larger group and satisfy the above criteria.
How do I file micro-entity accounts?
Small companies have the option to file their micro entity accounts, including their company tax returns, using the online services of both HM Revenue and Customs (HMRC) and Companies House.
The online services are is easy to use and can be accessed from the comfort of your home.
To use it, you’ll need your government gateway details and a company house authentication code. You can also opt to post your documents in, but make sure you give yourself plenty of time.
Should I use an accountant to file micro-company accounts?
What's included in a set of micro-entity accounts?
Your micro-entity set of accounts will include a simplified balance sheet. This is a smaller and more concise version of a normal balance sheet and should include the following information:
- Fixed assets
- Current assets
- Creditors (Falling due within one year)
- Net current assets
- Total assets less current liabilities
- Creditors (Falling due after one year)
- Net assets
Don’t worry, you won’t need to remember all of this, Companies House will provide you with a template to fill in the necessary information. Though, it is important that it is filled out correctly or you could end up with increased tax liabilities and even penalties if you make a mistake.
How to Record and Maintain Accounts
It is important to be aware of all deadlines and regulations involved with micro-entity accounts, in order to remain compliant.
These can vary from business to business, so it is essential to develop a thorough understanding of the legal requirements of your company.
As we have already mentioned, failure to abide by the set regulations you could end up with penalties, which is why it is so important to maintain accurate records.
You must be keep accurate information, including receipts and invoices throughout your financial year.
Try to get in the habbit of filing any documentation regaring transactions that you make.
Regular review of accounts is also necessary to identify any potential areas of risk or error in the accounts. A trained professional will often do this when producing your finanical statements.
It is important to note that you should keep all records for a minimum of six years from the end of the last financial year they relate to. Should an audit be necessary at any point in the future these documents will need to be present.