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What is an SME?

Kim Staples
Written by  Kim Staples
5 min read
Updated: 02 Apr 2024

More than 99% of businesses in the UK are SMEs – small and medium sized enterprises. So what counts as ‘small and medium’, and what do you need to know about operating one?

What is an SME?

‘Small or medium’ may sound vague – and in fact the exact definitions of each can change depending on who you ask.

According to UK law:

  • A micro business has fewer than 10 employees, and a turnover or balance sheet less than the equivalent of €2 million

  • A small business has 10 to 49 employees, and a turnover or balance sheet less than €10 million

  • A medium business has 50-249 employees, and a turnover of less than €50 million or a balance sheet of less than €43 million

However, when it comes to filing taxes, the Companies Act 2006 has slightly different definitions:

  • A micro entity has up to 10 employees, an annual turnover of up to £632,000, and a balance sheet of up to £316,000

  • A small company has up to 50 employees, an annual turnover of up to £6.5 million, and a balance sheet of up to £3.26 million

  • A medium sized company has up to 250 employees, an annual turnover of up to £25.9 million, and a balance sheet of up to £12.9 million

For the purposes of the R&D (research and development) tax relief, an SME has:

  • Up to 500 employees

  • An annual turnover of up to €100 million, or a balance sheet of up to €86 million

And finally, if you’re shopping for business energy for your premises, Ofgem classes a micro business as having:

  • Up to 10 employees, and an annual turnover of €2 million or a balance sheet up to €2 million

  • Or uses up to 1000,000 kWh of electricity or 293,000 kWh of gas per year

You’ll notice a lot of the above figures are in Euros. That’s a holdover from when the UK was part of the EU, and today it keeps the current UK definitions in line with the rest of Europe.

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What other types of business are there?

If a business isn’t an SME, it’s a large enterprise. This is defined as a company with more than 250 employees.

They only account for a miniscule 0.1% of businesses in the UK – 7,675 at the last count, in fact – but employ a whopping 39% of the country’s working population.

What kinds of businesses count as SMEs?

Almost every business in the UK is an SME. As long as the company fits the above definitions, it counts.

That covers all kinds of businesses, such as:

What are the issues faced by SMEs?

According to surveys by Lloyds and Statistica, the biggest challenges faced by SMEs in the last couple of years included:

  • Cashflow, the economic climate, and the cost of living crisis – Money can be tight or variable with an SME, and the current economic climate means rising costs and increasing employee salaries are a concern

  • Net zero and climate change – SMEs can find it challenging to keep their working practices sustainable and green-friendly

  • Political uncertainty and government policy – A small change in policy can have a big impact on a small business

  • Supply chain issues – Disturbed supply chains can also have a big impact on a business’ product

Help and support for SMEs

The government has a full directory of where you can access financial support for your SME via its business hub on Gov.uk.

For help with any issues around late payments, you can also access the Small Business Commissioner for advice and resources.

Small and medium businesses are also entitled to certain tax reliefs, such as R&D (research and development) relief.

And finally, as a small business, you have access to a number of specialised financial products designed to cater to the needs of a small enterprise. You can explore:

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