What Qualifies as a Small Business in the UK?

If you run a business in the UK, you might wonder what officially counts as a “small” business. Does it depend on the number of staff, your turnover, or something else? It’s an important question, because classifying your business correctly can affect your taxes, funding opportunities, and legal obligations. In fact, small and medium-sized enterprises (SMEs) make up over 99% of all businesses in the UK, so understanding where your company fits is crucial.

This quick guide breaks down how a small business is defined in the UK, how it differs from micro or medium businesses, and why the classification matters for you as a business owner.

Small business definition in the UK.

The official UK definition for a small company is outlined in the Companies Act 2006, which classifies a business as small if it meets at least two of these criteria: – turnover of £15 million or less – balance sheet total of £7.5 million or less – no more than 50 employees.

In practical terms, if your business employs dozens rather than hundreds, with turnover in the single-digit millions, it’s likely classed as small. Here’s a quick table to help illustrate:

Note: Large companies are entities that do not meet the criteria to be classed as a medium sized or smaller company.

Types of businesses that qualify as “small”.

“Small business” is a broad term that can apply to many business structures and industries. Here are some common types of businesses that often fall into the small business category:

• Sole trader or proprietorship: a one-person business, where an individual is self-employed and runs the business on their own. Many freelancers, consultants, and tradespeople are sole traders.

• Private limited company (Ltd): a registered company with a small number of employees or shareholders. Owners’ liability is limited to their investment. A local shop, tech startup, or family-run company with modest staff can be a small Ltd company.

• Partnership: a business owned by two or more people who share profits and responsibilities. Small law firms, medical practices, or other professional services often operate as partnerships (including LLPs).

  Non-profit or charity: an organisation with charitable or social purposes can still be considered “small” if it has a small team and budget. For example, a local charity or social enterprise with a handful of employees fits the small-scale criteria.

• Cooperative or franchise unit: a cooperative owned by its members, or an individual franchise outlet of a larger brand, can be small in scale (even though part of a bigger network). Each unit with under 50 staff is classed as a small business on its own.

In essence, “small business” isn’t about your legal structure or industry, it’s about scale. You could be a solo app developer, a café owner with 10 staff, or a growing e-commerce startup with 30 employees. All of these (and many more) would be classed as small businesses in the UK so long as they stay below the key size thresholds.

Note: The size thresholds in the Companies Act 2006 formally apply to companies and LLPs. In practice though, terms like “micro”, “small”, and “medium” are often used more loosely to describe the scale of any business, including sole traders, charities, and partnerships.

Why does small business classification matter?

Being classed as a small business comes with practical implications and advantages. Governments and regulators often provide certain benefits, reliefs, or lighter requirements to help small businesses thrive. Here are a few important ways being a “small business” can impact you:

• Simplified compliance: Small companies enjoy easier reporting and less red tape. For instance, companies defined as small can file simplified accounts with Companies House, and are often exempt from having to undertake mandatory audit of their financial statements. This exemption is provided under section 477 of the Companies Act 2006.

• Tax relief and allowances: Small businesses may qualify for Small Business Rate Relief, which reduces or eliminates business property taxes if your premises’ rateable value is below a certain threshold. Small employers can also claim the Employment Allowance to save on National Insurance contributions. Additionally, the government offers schemes like Research & Development (R&D) tax credits to encourage innovation in SMEs.

• Access to funding and support: Being a small business can open doors to certain grants, loans, or government support programs that are reserved for SMEs. Authorities actively want to help small and independent businesses grow, so you’ll find local and national grant programs targeted at small enterprises.

• Focused business advice and resources: Recognising that small businesses have different needs, many advisory services, training programs, and networking groups are tailored for small business owners.

The big picture: small businesses in the UK.

Small businesses are the backbone of the UK economy, and understanding the definition is part of understanding where your business stands in that landscape. SMEs (which include small businesses) account for over 99% of all businesses, employing tens of millions of people.

If you’re running a small business, you’re certainly not alone. From one-person startups to family firms with a few dozen staff, small businesses span every region and industry, and each plays a role in driving innovation, employment, and growth. Knowing you’re officially classed as a small business can encourage you to take advantage of available support and connect with the broader community of small UK businesses.