What is a micro business?
The definition of a microbusiness is a hard one to pin down. Different industries and agencies have their own requirements as to what classifies a microbusiness. However, they can all agree that microbusinesses are the smallest of small businesses and significantly impact our economy.
The government released data in October 2020 that 76.3 % of businesses in the UK are owned and operated by a single person. This type of small business has been one of the primary growth areas of UK businesses in the last ten years as increasing numbers of people have become self-employed. It’s essential to recognise the growth potential that these tiny powerhouses contribute to the UK’s economic turnover as they account for over 21% of it.
These very small enterprises are increasingly recognised as a distinct business class with their own needs. As with SMEs, there is no one definition of what a micro business is. Different parts of the UK government have their own specifications to describe them. The principal definitions used by the UK government are:
ONS Definition of a micro business
The Office for National Statistics publishes figures each year on the number and size of businesses in the UK. Theirs are the authoritative stats on UK businesses. The ONS doesn’t talk about micro-businesses, but they do classify enterprises by the number of employees. Their Business Population Estimates for 2020 show 4,567,775 businesses with no employees and a further 1,156,925 businesses with between 1 and 9 employees.
Companies House Definition of a micro business
Companies House introduced abridged filing requirements for micro-businesses a few years ago and referred to them as micro-entities. Their interpretation of a micro-entity is a business that meets two or more of the following conditions:
- a turnover of £632,000 or less
- £316,000 or less on its balance sheet
- Ten employees or less
HMRC Definition of a micro business
For most purposes, HMRC doesn’t distinguish a micro-business from other types of small businesses. One of the few differences is with payroll and pensions, where they have simplified procedures for what they term ‘micro employers’. They define a micro employer as a business with nine or fewer employees.
EU Definition of a micro business
Several parts of the UK government have been using the EU definition of a microenterprise when addressing micro businesses. According to the EU, a microenterprise is a business that employs fewer than ten people and has an annual turnover that does not exceed 2 million Euros. However, this may change in light of Brexit.
Why does this matter?
A broad definition of a micro business based on the above requirements would be a business with less than ten employees. Using the ONS stats on the sizes of UK businesses types, 96% of businesses within the UK match the definition of a micro-business. Confusingly, most of the legislation in the UK, and more of the government’s support, is aimed at far larger entities whilst micro-businesses face unique challenges due to their size and capacity.
Often overstretched, micro-business owners find they have to focus on managing and meeting short term needs instead of growing. Having one recognised definition of a micro business would help solidify its value and make it easier to track their participation in the UK economy and perhaps focus the mind of policymakers on their needs.
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