What Notes do Micro Entity Accounts need?

Officially, the answer is none, although that's not quite true!

Instead of notes, there are some details which must be included if they are relevant in that year; and they should be included at the bottom of the balance sheet page.

In case you're wondering, these are called ‘minimum accounting items’ and here they are:

1. Advances to Directors

The note isn't after the balance at the year end as many people think, but actually the total advances made to the Director. It also needs to add whether any of the advances were paid back and what terms the advances were made under.

These amounts are generally recorded in the Director’s Loan Account, so this is the first place to look.

Here's an example

Brian is a director of BB King Ltd. Details of his loan account for the year ended 31 March 2022 are as follows:

Opening balance at start of year (10,000)

ie he is owed this amount by the LTD Withdrawal 1 6,000 Withdrawal 2 3,000 Withdrawal 3 2,000 Withdrawal 4 5,000 Dividend (10,000) Closing balance at end of year (£4,000)

The first couple of withdrawals are simply the director withdrawing from the amount he's owed, so these are not considered 'advances'. For the 3rd withdrawal, half is still amounts due to him but the rest is a new advance, and his current account becomes £1,000 overdrawn. The 4th withdrawal is an advance.

A dividend of £10,000 is taken just before year end.

Which all means, his advances for the year should be shown in the Accounts as £6,000.

The Accounts should then record a note like this:

During the year, the company made interest-free advances to a director amounting to £6,000 (2019: £X). These were repayable on demand.

The company received repayments of £6,000 (2019: £X).

Note that there is no requirement to include the director’s name.

2. Guarantees for directors

If the company has provided any guarantees to third parties on behalf of its directors, then a note must be included to describe the arrangement.

3. Financial commitments, guarantees and contingencies

Examples of each are:

• A Financial Commitment: the company has signed up for the rental of a machine for the next 2 years at £18,000 per year; or it still owes money to pay into its Pension scheme.

• A Guarantee: the Company has guaranteed something specific that has a chance of costing it money, or where the Company has given security for a loan on any of the Company assets.

• A contingency: the Company may have to pay a large bill which is contingent on something else happening and this amount is not already recorded in its Accounts.

4. Off-balance sheet arrangements

This tends to be where the Company has entered an agreement (a loan, or lease for example) which has not yet ended and the liability to pay this back is not already on the Balance Sheet.

5. Average employee numbers

This is the average number of employees the Company had during the year and needs to be calculated in a specific way:

• find for each month in the financial year the number of persons employed under contracts of service by the company in that month (whether throughout the month or not),

• add together the monthly totals, and

• (divide by the number of months in the financial year.

Micro-entity accounts must also provide details of:

- the part of the UK in which the company is registered; - its registered number; - the registered office address; and - when appropriate, the fact that it is being wound up.