What’s an SME?

99% of businesses in the UK are small and medium-sized business, with many making a big impact in their industries and markets.

But for those business owners just starting up, getting to the bottom of the bureaucracy can be confusing. One of the baffling issues tend to be which definition best describes your business in terms of size. Is it number of employees or turnover? Getting it right is crucial when filing annual returns and looking for small business funding and grants.

The criteria can vary from authority to authority, but as long as you’re aware of your status according the organisation you’re working with at any time – be it HMRC, Companies House or any other UK or EU government department – you should be fine. But as an overview, below are the main criteria you need work to.

EU / HMRC SME Definitions

This is the most widely-used definitions were created as a Europe-wide downloadable PDF guide, allowing SMEs to benefit from the support from the EU and its members countries:

• Micro-SME definition

  A micro-business has less than 10 employees, and less than €2 million turnover or a balance sheet of under €2 million.

• Small-SME definition

  A small business has less than 50 employees, and less than €10 million turnover or a balance sheet of under €10 million.

• Medium-sized-SME definition

  A medium-sized business has less than 250 employees, and less than €50 million turnover or a balance sheet of under €43 million.

A few caveats: Though the above definitions are broadly appplicable, it is worth noting that governmental bodies from EU member states sometimes have individual definitions of the above terms. For example in Germany the upper limit for an SME is actually 255, not 250. For this reason, it is worth researching local definitions. As demonstrated below (with the UK Companies House definitions) there can even be multiple definitions within an EU country, particularly where the member state is a non-member of the EU currency.

Companies House Definitions

For UK enterprises registered with Companies House, business owners and accountancy staff need to know the organisation's definition of SMEs before submitting annual returns and accounts, since they differ to the above descriptions.

A micro-entity should meet at least 2 of the below:

• Annual turnover of no more than £632,000.
• Balance sheet of no more than £316,000.
• Up to 10 employees.

Small businesses should meet at least 2 of the below:

• Annual turnover of no more than £6.5 million.
• Balance sheet of no more than £3.26 million.
• Up to 50 employees.

Medium-sized enterprises should meet at least 2 of the below:

• Annual turnover of no more than £25.9 million.
• Balance sheet of no more than £12.9 million.
• Up to 250 employees.

For R&D tax relief purposes

HMRC has a different definition for SMEs seeking tax relief on research and development. According to the government department, an SME has less than 500 employees with either:

• An annual turnover under €100 million.
• A balance sheet under €86 million.

SME funding

When it comes to applying for funding for SMEs, many providers may stick to the above EU criteria. But to be safe, always carefully read the criteria on the application to make sure your business falls within the requirements in terms of employee numbers and turnover. If you're looking at non-EU schemes, the criteria for SME might be different again, depending on the country.

Watch your figures

We’d recommend keeping a close eye on how your SME grows. If you exceed any of the figures mentioned above, you may need to change your status the next time you submit a business grant application or a tax return. You wouldn't want to cause any delays or face penalties for inaccurate information.