Micro-Entity Thresholds: What Business Owners Need to Know
Running a business comes with plenty of challenges, and financial reporting can often feel like a maze of complex rules. But here’s some good news: if you’re a small business owner, you may now qualify as a micro-entity, meaning simpler financial reporting requirements under FRS 105.
So, why have the limits changed? And how does this impact you? Let’s break it down.
What Is a Micro-Entity?
A micro-entity is a small business that meets specific financial thresholds. These limits were updated in 2025 following changes to the EU Accounting Directive, which aims to streamline financial reporting across Europe.
To be considered a micro-entity, a company must not exceed two of the following criteria for two consecutive years (or for the current year if newly incorporated):
- Turnover: €900,000 (previously €700,000)
- Balance sheet total: €450,000 (previously €350,000)
- Average number of employees: 10 (unchanged)
These new thresholds mean that more small businesses can benefit from simplified accounting rules, reducing compliance costs and paperwork.
Why Have the Limits Increased?
The EU periodically updates financial reporting standards to reflect economic changes and inflation. The increase in turnover and balance sheet limits ensures that more small businesses qualify as micro-entities, allowing them to focus on growth rather than excessive administrative burdens.
What Does This Mean for Your Business?
If your company qualifies as a micro-entity, you can prepare simplified financial statements under FRS 105. This means:
- No requirement to disclose directors’ salaries in your annual accounts
- Reduced reporting requirements, making compliance easier and less costly
- A streamlined approach to financial statements
Things to Consider Before Opting for FRS 105
While the simpler reporting rules may seem attractive, there are a few potential downsides:
- Banks and suppliers may still request more detailed financial information when evaluating credit applications
- Some stakeholders, such as investors, may prefer greater transparency in financial reports
Before making the switch, it’s worth discussing with your accountant whether FRS 105 is right for your business.
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Or contact usLast updated: 16th July 2025