What is an SME? A simple definition

Small or medium-sized enterprises (SMEs) are often described as the engine room of the UK economy - employing millions of people and driving economic growth and sustainability. In 2020, there were 5.94 million small firms, accounting for 99.9% of the business population, according to the Federation of Small Businesses.

But does your business qualify as an SME? It can be a crucial question when complying with financial reporting requirements; qualifying for some types of insurance; complaining to the Financial Ombudsman; and qualifying for grants, subsidies or loans, including the Coronavirus Business Interruption Loan Scheme (CBILS).

What is an SME?

There is no universal definition of an SME. It is often used as a general phrase to refer to this sector of the business community. But it also has specific definitions in UK law, and with institutions such as the EU, British Business Bank (BBB) and Financial Conduct Authority (FCA).

One of the most widely used classifications is in the UK Companies Act 2006, updated in 2016. This has three categories of SME, each with different financial reporting requirements.

A micro company has not more than £632,000 revenue; £316,000 or less balance sheet total; and fewer than 10 employees. A small company’s ceilings are £10.2 million turnover; £5.1 million balance sheet total; and 50 employees. A medium-sized company’s maximums are £36 million turnover; £18 million balance sheet; and 250 employees. Other criteria and exemptions apply to these definitions.

The EU has definitions for SMEs to access its finance and support programmes. Its ceilings for a micro-sized enterprise are 10 staff; and €2 million turnover and balance sheet total. For a small company, they are 50 employees, and €10 million turnover and balance sheet. A medium-sized company’s upper limits are 250 staff, €50 million turnover, and €43 million balance sheet.

The BBB defines SMEs as those with less than £45 million turnover - one of the criteria for CBILS eligibility.

The UK’s Financial Ombudsman has definitions of small and micro companies eligible to complain through it. Financial regulator the FCA provides has yet more definitions in its Approach to SMEs as users of financial services.

Private banks, insurers and bodies that award grants and subsidies may also have their own definitions.

What support is available to SMEs?

There are many grants and subsidies available to UK SMEs and they can be an excellent way to kick-start or grow your business.

Most grants are offered by industrial partners, governmental agencies, or a combination. They usually support a specific sector, so your company must be in that sector to get help. Grant schemes will also assess, in detail, the viability of your business and how you plan to spend the money.

Some grants available to UK small businesses are:

• Industrial partnership awards, which support academic-led science projects where an industry partner has an interest in its potential use

• Innovate UK, to help UK businesses realise the potential of new technologies, develop ideas and make them a commercial success

• Stand-alone LINK grants, which support collaborations in new areas of science with no current industrial use

• Construction Industry Training Board grants scheme – England, offering support and potential funding to help construction businesses increase competitiveness

• Regional and local government grants, with a vast range of support available.

Grants and subsidies available to companies with activities in the EU include the Innovative Medicines Initiative and Creative Europe media grants.

How to set up an SME

The Getting started section in our knowledge centre has a wide range of information for people starting up small and medium-sized companies. This includes how to write a business plan, how to choose a company name, how to decide which company structure to use and how to set up a limited company.