Starting a new business? Get 40% off our accountancy services for 3 months! 😎

x

Our frequently asked accounting and bookkeeping questions blog series is designed to make running your business as simple and stress-free as possible, and to help you understand all the jargon you might encounter in the process of running your business.

In this article, we explain all things Financial Reporting Standard (FRS 105). Let’s get stuck in!

What is the Financial Reporting Standard (FRS 105)?

FRS 105 is a specific type of Financial Reporting Standard that was developed by the UK’s Financial Reporting Council (FRC).

It applies to ‘micro-entities’ – more on what these are in just a moment – and in a nutshell, provides those who qualify with a quicker, simpler, and more cost-effective way of managing financial statements and reporting.

The main benefits for those that fall within FRS 105 include:

  • Simplified accounting requirements: FRS 105 allows micro-entities to file a more straightforward set of accounts, more stripped back than the accounts small, medium and large companies have to keep.
  • Lower costs: Simpler and more streamlined accounting requirements naturally mean micro-entities are able to spend less money on preparing and submitting their financial records to HMRC than their counterparts.
  • Improved understanding of financial performance: As financial accounts are more straightforward for micro-entities under FRS 105, this means they’re also easier to understand. As a result, micro-entities can really get to grips with what all the different metrics mean so they can then apply this knowledge to their business growth strategy.
  • Access to funding: Sometimes, micro-entities that comply with FRS 105 regulations can find it easier to access funding from banks and other sources.

 

Startup accountancy services

From only £54.50 £32.70 per month

Learn more

Who does FRS 105 apply to?

The Financial Reporting Standard is only applicable to limited companies that qualify as a micro-entity, based in the UK.

What makes a micro-entity?

In order for HMRC to classify your limited company as a micro-entity, you need to meet two or more of the following criteria:

  • Have a turnover of £632,000 or less (this can be adjusted if the financial year is less or more than 12 months).
  • Have £316,000 or less on your company’s balance sheet, including fixed assets and current assets.
  • Have 10 employees or fewer working for your company.

If your circumstances change and you can’t meet two or more of the above criteria anymore, you will no longer qualify as a micro-entity and will therefore no longer have access to the FRS 105 system or its benefits.

What accounts do micro-entities need to file under FRS 105?

Limited companies qualifying as micro-entities under FRS 105 are required to submit the following financial information to HMRC on an annual basis:

  • Statement of Financial Position: A type of balance sheet detailing the company’s assets, liabilities, and equity relating to the accounting period being reported on.
  • Income Statement: A type of profit and loss account detailing the company’s income and expenses for the same accounting period.
  • Footnotes: These notes should outline any company director transactions that have taken place during the accounting period. This doesn’t need to be extremely detailed information; it can be a basic account.

All of this information needs to be submitted as part of your overall company year-end accounts filing process.

It’s also worth noting here that micro-entities don’t need to file a cash flow statement under FRS 105. However, you can still do so if you think it might be an effective way to provide useful information to anybody who uses your financial statements.

Micro-entities under FRS 105 also need to file their Statement of Financial Position (balance sheet) and the footnotes outlining director transactions with Companies House as well as HMRC.

Is FRS 105 compulsory for qualifying limited companies?

No, it isn’t mandatory for a limited company that meets the micro-entity criteria to use the FRS 105 accounting standard, it is a choice.

A common reason why a limited company may not choose to file under FRS 105 is if it’s working with a third party (such as an investor) who requires more detailed financial records from the company.

In this case (and similar), a limited company can use Financial Reporting Standard FRS 102 instead. This requires more complex and detailed financial information to be compiled and documented.

 
Understanding how to report your finances correctly is crucial. Unsure? Reach out to a professional. Call 020 3355 4047 to speak to one of the team about our online accounting and bookkeeping services or get an instant online quote.

About The Author

Stephanie Whalley

Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.

More posts by this author
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

Maternity Pay for Self-Employed People

Being self-employed can offer the kind of freedom and flexibility many of us dream about. But if you’re looking to start or…

Read More

What are Payments on Account?

Payments on account are a type of advance payment that you might need to make towards your Self Assessment tax bill. In…

Read More

Staff Spotlight: Aaron Parkinson, Semi-Senior Accountant

This month we spoke to Aaron Parkinson, Semi-Senior Accountant at The Accountancy Partnership! Give an overview of the duties, functions and responsibilities…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You will receive our bookkeeping software Pandle for free, as part of your package.

You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.

Please select and option below:

I will do my own bookkeeping
I want you to do my bookkeeping

Call us on 020 3355 4047 if you’re not sure.