What would "It is small too" translate as?
Tha e beag cuideachd.
Isn't e he as well? How do you know when it is it?
I agree. There's no context to decide if "it" or "he" is meant, so it should accept both answers
It accepts he.
Why bheag it is not formal is it
No, it's not formal. But some words (such as "ro" and "glè") make the word that follow undergo lenition. Have a search for "The Magic of Lenition" at https://duome.eu/tips/en/gd