What is FRS 105 for micro entities?
Answered 17 March 2026
Here is a comprehensive overview of FRS 105 for micro-entities, drawing on HMRC guidance and legislation.
What the law says
A company qualifies as a micro-entity under Companies Act 2006, s.384A if it satisfies at least two of the following three conditions in a financial year:
| Requirement | Threshold |
|---|---|
| Turnover | Not more than £1 million |
| Balance sheet total | Not more than £500,000 |
| Number of employees | Not more than 10 |
Key points from the legislation:
- For a first financial year, the qualifying conditions must be met in that year.
- For subsequent years, a change in status (meeting or ceasing to meet the conditions) only takes effect if it occurs in two consecutive financial years.
- For a parent company, it must also head a group that qualifies as a small group.
- Turnover thresholds are proportionately adjusted for periods shorter than a year.
HMRC guidance / practice
What is FRS 105?
FRS 105, formally titled "The Financial Reporting Standard applicable to the Micro-entities Regime", is part of the suite of New UK GAAP standards published by the Financial Reporting Council (FRC). It sits alongside FRS 100–104 within the UK GAAP framework.
Origins and history
FRS 105 was issued in July 2015 and was initially made available to companies qualifying for the micro-entities regime. It was subsequently updated in 2017 to cover LLPs and qualifying partnerships, and to incorporate the results of the first triennial review.
Effective date
FRS 105 is effective for periods beginning on or after 1 January 2016.
Relationship to FRS 102
FRS 105 is based on FRS 102, but its accounting requirements are adapted to:
- satisfy the legal requirements applicable to micro-entities; and
- reflect the simpler nature and smaller size of micro-entities.
It is described as a "very much simpler" standard compared to FRS 102 or IFRS.
Application is optional
Qualifying micro-entities may choose to apply FRS 105 — it is not mandatory. They could alternatively apply FRS 102 (Section 1A for small entities).
Simplified accounting requirements
For entities applying FRS 105, the accounting for financial instruments is principally governed by Sections 9 and 17 — Section 9 covering recognition and measurement, and Section 17 addressing the distinction between liabilities and equity. For leases, the recognition and measurement principles in FRS 105 Section 15 are based on the original version of FRS 102.
In summary: FRS 105 is the UK accounting standard for the smallest companies — those meeting the micro-entity size thresholds in the Companies Act. It is an optional, simplified version of FRS 102, effective from 1 January 2016, designed to reduce the reporting burden for very small entities.
Citation sources
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