Micro-company accounts are changing too: What business owners need to know

As part of our ongoing look at what’s changing in 2026 and beyond, we're highlighting changes to the accounting rules used by some of the UK's smallest companies.

If you run a very small limited company, you may have heard about changes to company accounts and wondered whether they affect you.

The answer is: some do and some don't.

The smallest companies can qualify to prepare their accounts using a simpler set of accounting rules. These are known as FRS 105, although you don't need to know whether your company uses them. That's something we can establish for you. What matters is understanding that smaller companies haven't been left out of the 2026 accounting changes, but they aren't affected in exactly the same way as larger businesses.

What is a micro-company?

"Micro-entity" is the formal term used for a company that meets certain size criteria and qualifies to use simplified accounting and reporting rules. The size limits were increased for financial years beginning on or after 6 April 2025. A company will generally qualify as a micro-entity if it meets at least two of the following three limits:

• annual turnover of no more than £1 million;
• a balance sheet total of no more than £500,000; and
• an average of no more than 10 employees.

There are additional eligibility rules, so meeting the size limits alone does not automatically mean every company can use the micro-entity regime. If you're unsure whether your company qualifies, we can confirm the position.

Why does being a micro-company matter?

Micro-companies can use a simplified accounting framework designed specifically for very small businesses. This reduces some of the reporting requirements that apply to larger companies. However, the accounting rules used within that framework have also been updated from 2026. So while you may hear about significant changes affecting company accounts generally, it is important not to assume either that all of them apply to your business or that none of them do.

What isn't changing for micro-companies?

One of the biggest accounting changes being introduced for many businesses concerns leases. Businesses affected by the wider changes may now need to show most leases on their balance sheet, potentially increasing both the assets and liabilities reported. That change does not apply in the same way to qualifying micro-companies using the simplified FRS 105 rules.

So if your small company rents an office or leases a vehicle, you shouldn't assume that the new lease rules you may have read about automatically apply to you. This is one of the main reasons why understanding which accounting framework your company uses is important.

What is changing?

One area that does change for micro-companies is how income from customers is accounted for. For many businesses with straightforward sales or services, this may make very little practical difference.

But it could become more relevant where your company has arrangements such as:

• longer-term customer contracts;
• services delivered over a period of time;
• upfront payments;
• several products or services included within one price;
• staged projects; or
• fees that depend on achieving a particular result.

The updated rules look at what the business has agreed to provide to the customer and when that has actually been delivered.

This helps determine when the income should appear in the accounts.

Does this mean my accounts are becoming much more complicated?

Not necessarily. The whole purpose of the micro-entity accounting framework is to provide a more proportionate approach for very small companies. For many owner-managed businesses with relatively straightforward activities, the practical impact of the changes may be limited. But it is still important that the right accounting treatment is applied.

The best approach is not to try to learn the accounting rules yourself, but to make sure your accountant understands anything unusual or more complicated about the way your business operates.

Are there other changes for micro-companies?

Yes. There are a number of other updates within the accounting rules, although many are technical changes that will simply be dealt with when your accounts are prepared.

 From a business owner's perspective, the more useful question is “Is there anything about my business or its transactions that my accountant needs to know about?”

That could include a new type of customer contract, an unusual transaction, changes to the way the business charges customers or a significant change in the company's activities. Keeping your accountant informed during the year can often make dealing with the year-end accounts much simpler.

When do the changes apply?

Most of the updated accounting rules apply to financial years beginning on or after 1 January 2026. For example, a micro-company with a year end of 31 March 2027 is already within its first affected financial year. So, although you may not see any difference until the next accounts are prepared, the rules are already relevant to transactions taking place now.

There are other changes coming for small companies too

The accounting changes are only part of a wider shift in company reporting.

• From 1 April 2028, Companies House is also introducing significant changes to the way company accounts are filed.
• All companies will need to file their accounts using commercial software in iXBRL format.
• Small and micro companies will also need to submit a profit and loss account to Companies House, although the Government has confirmed that they will be able to opt out of having that information published on the public register.
• Abridged accounts will also be removed.

These are separate changes from the accounting rules covered in this article, but together they mean that company reporting will look different over the next few years.

You can read more in our separate article to the Companies House accounts filing reforms from April 2028.

What should I do?

For many micro-company owners, there is no need to make significant changes to the way you run your business. The important thing is simply to make sure that your accountant has the right information. In particular, tell us if:

• you've introduced new products or services;
• the way you charge customers has changed;
• you receive significant payments upfront;
• you have customer contracts running over longer periods;
• you've entered into an unusual or significant transaction; or
• the business has grown significantly.

That last point is particularly important. As a company grows, it can move out of the micro-entity regime and into a different level of financial reporting. The increase in the company size thresholds means more businesses can now qualify as micro-entities, but eligibility should still be considered as part of preparing the accounts.

How Ward Williams can help

You don't need to know whether your accounts are prepared under FRS 105 or understand the detailed accounting requirements behind them. We can establish which rules apply to your company, identify any changes that are relevant and let you know if we need additional information from you. As your business develops, we can also help you understand when moving beyond the micro-company regime may change your reporting requirements.

Key takeaways

• The accounting rules used by qualifying micro-companies have changed from 2026.
• Not all of the changes being discussed for larger businesses apply to micro-companies.
• In particular, the major new lease accounting rules do not apply in the same way to businesses using the micro-company accounting framework.
• There are changes to how some customer income is accounted for.
• For many straightforward businesses, the practical impact may be limited.
• The micro-company size thresholds increased for financial years beginning on or after 6 April 2025.
• Further changes to the way small and micro-company accounts are filed with Companies House are coming from April 2028.
• You don't need to determine which rules apply yourself. Your accountant can do that for you.

If you run a small company and would like to understand which of the changes affect you, speak to your usual Ward Williams contact. Contact us on 01932 830664 or email enquiries@wardwilliams.co.uk.

More changes to be aware of

This is one of a number of changes affecting businesses over the coming years. Visit our What’s changing in 2026 and beyond? page for our latest guidance on the key tax, regulatory, employment and financial reporting changes and when they take effect.