The SME definition

There are numerous factors that can determine whether or not your business is classed as an SME. Take a look at our simple guide to see where your firm fits in.

The number of staff you employ is just one factor that can determine your business size.

When asked 'what is a small business?’ many people are likely to offer various answers - not everyone subscribes to a simple definition, with different organisations using their own criteria to determine what constitutes a small or medium-sized enterprise (SME). 

While small businesses are at the heart of the UK – helping to provide jobs and support to the economy both on a local and national scale - it can be difficult determining exactly which firms fit into the category. The problem in providing specifics when trying to define small and medium enterprises, is that no one can agree on a single description. Where the European Union (EU) offers its own SME definition, UK bodies such as Ofgem have a different interpretation of how medium, micro and small business sizes should be defined. 

For example, the EU's business size standards use turnover, balance sheet total and employee size to determine their definition of an SME. However, this may not be appropriate in certain industries, with utilities organisations preferring to consider energy usage when deciding on suitable business size definitions. 

The number of staff that a business employs is one of the most widely accepted ways of indicating SME size.

Another issue with trying to determine how a small business is defined is that official bodies will frequently review their SME definition to reflect social and economic changes. Micro businesses, for example, are becoming more common place. So, in order to answer the question ‘what is a micro business?’, the government has issued their micro business definition to help distinguish between the needs of micro and small businesses. 

To help you determine where your business fits - and to ensure that you are getting all of the support that is available to you - we have put together some tables of business size standards to help you understand where you sit in the business world. 

Employee Number

The number of staff that a business employs is one of the most widely accepted ways of indicating SME size. These figures can often change from country to country, but below are the official benchmark figures as set out by the EU.

SizeEmployee number
Micro business Less than 10
Small business Between 11 and 50
Medium business Between 51 and 250
Large business Between 251 and 1,000
Enterprise More than 1,000

Turnover

Sales figures can be used to determine a number of things about a business, including its size. The EU chooses to use a company’s annual turnover to help define their business size standards. (figures are converted from Euros and are subject to exchange rates.)

SizeBy sales
Micro business Less than £1,400,000
Small business Between £1,400,000 and £7,000,000
Medium business Between £7,000,000 and £36,000,000
Large business More than £36,000,000

Balance sheet total

The ultimate metric that many businesses’ success is measured by is profit - and the same is true when trying to determine size. The EU has offered the following figures to help people understand their SME definition. (figures are converted from Euros and are subject to exchange rates.)

SizeBy turnover
Micro business Less than £1,400,000
Small business Between £1,400,000 and £7,000,000
Medium business Between £7,000,000 and £31,000,000
Large business More than £31,000,000

Energy Usage

When organising an energy contract for your business, a SME definition is required to know what type of contract would best suit your needs. Below you can find the definition of micro, small, medium and large businesses by annual energy usage.

SizeElectricity by kWh
Micro business Between 5,000 kWh and 15,000 kWh
Small business Between 15,000 kWh and 25,000 kWh
Medium business Between 30,000 kWh and 50,000 kWh
Large business More than 50,000 kWh
SizeGas by kWh
Micro business Between 5,000 kWh and 15,000 kWh
Small business Between 15,000 kWh and 30,000 kWh
Medium business Between 30,000 kWh and 65,000 kWh
Large business More than 65,000 kWh

Insurance Premiums

The majority of businesses will purchase insurance to protect their financial security, and this can be another useful indication of their size. This method is not formally recognised by any official bodies outside of the insurance sector, but it is a good way to further define what a SME company is.

SizePremium cost
Micro business Less than £500
Small business Between £500 and £2,000
Medium business Between £2,000 and £6,000
Large business More than £6,000  

The Exceptions

When defining the size of your business, there are some exceptions to be aware of. The main one is that an enterprise must be autonomous or part of a group of affiliated enterprises that together fall into the categories laid out above. For example, if your business is a franchise or has a close working relationship with another enterprise - and you exceed the threshold for the SME definition - then this means you cannot define your business as such.

Am I a small business owner?

In order to define your business’s size you must first measure it against the corresponding employee number. In addition you must also measure it against either the turnover or profit figures.

Providing you meet these criteria, you can declare your business as a SME on the government website by downloading this form and filling it in.

What are the benefits of declaring myself as a SME?

Due to the number of benefits that are offered through government schemes, there has never been a better time to declare your business a SME. In fact, it has been estimated that Britain’s small businesses could be entitled up to £10,000 worth of savings, all of which will help to strengthen your business’s bottom line.

The government has pledged the following to SMEs:

  • £1.1 billion support package for SME business rate relief.
  • Up to £2,000 for 20,000 businesses to encourage growth.
  • Up to £3,000 per SME to secure faster broadband connectivity.
  • A £2,000 Employment Allowance to reduce National Insurance Contributions.
  • SMEs will also benefit from the future scrapping of regulations to save all SMEs over £800,000,000 a year.

So, there has never been a better time to run a SME. To find out more about the SME benefits that are offered through government incentives, click here.

Photo credit: Mike Peel

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