UK SME definition changes

Despite some recent difficulty, the UK government remains committed to its growth agenda. In a bid to stimulate growth and cut red tape, it has now announced its intention to wants redefine the definition of what constitutes a ‘small’ business.

Currently, small businesses are exempt from a whole raft of regulations, while their medium sized counterparts are not. However last month, the government said it would extend the definition of small business for regulatory purposes to those with fewer than 500 employees. It had previously been set at fewer than 50.

This new threshold will apply to all new regulations under development, and to those under current and future review. In particular, the changes may have an impact on how a company’s tax burden is managed Size limits can apply in the tax legislation to exclude businesses from a regulatory burden, but they are also used to limit the availability of reliefs or incentives.

Size limits designed to cut red tape

The government is framing the change as one of the benefits derived from leaving the EU. Whereas previously UK legislation had to comply with EU law, having left the bloc in 2020, the UK Trade department says, “We are free to take our own approach and exempt more businesses to those with under 500 employees. We will also be able to apply this to retained EU law currently under review, which we would not have been able to do without our exit from the EU.”

Tax reliefs and incentives

The press release also made clear that this is an initiative primarily designed to “harness the freedoms the UK has since leaving the EU to remove bureaucratic and burdensome regulations.”

However, it is not certain whether this will result in favourable shifts in tax policy for ‘small’ businesses where eligibility for a tax relief or incentive is limited by reference to the number of employees. Time will tell if reliefs become available to an expanded number of businesses as a result of the threshold adjustment or whether this is simply a measure designed to reduce paperwork.

The UK remains a vibrant place to grow a business, and that growth can be supported by working with the right partners. At Paul Beare Ltd, we’re here for all your needs, and you can contact us for help and support in a number of areas, from tax and payroll to accounting and banking.