Businesses can be classified as micro, small, or medium according to size, type, investment limit, and turnover. Small and medium-sized businesses are often regarded as the foundation of every thriving economy as they promote growth, generate jobs, and open new markets.
Micro, small, and medium enterprises are companies with a limited number of employees that vary in terms of the size of the company and the amount of money the company makes annually.
This blog post will examine the differences between micro, small, and medium businesses. Let’s get started!
Table of Content
How are micro, small, and medium enterprises different?
Effective 06 April 2025, the table below sets out the new size thresholds that will be met for a financial year if any two of the three criteria are met.
| Business size | Turnover | Balance sheet total | Employees |
| Micro | £1 million | £500k | 10 |
| Small | £15 million | £7.5 million | 50 |
| Medium | £54 million | £27 million | 250 |
The old thresholds applicable till 05 April 2025 are:
| Business size | Turnover | Balance sheet total | Employees |
| Micro | £632k | £316k | 10 |
| Small | £10.2 million | £5.1 million | 50 |
| Medium | £36 million | £18 million | 250 |
If knowing your business type is complex, you can hire a financial expert to guide you and make the right decision.
What are the taxes for small and medium enterprises?
1. VAT
Most products and services are subject to VAT (value-added tax). VAT registration is compulsory if the annual revenue exceeds £90,000, excluding exempt sales.
2. Corporation tax
If your business is a limited company, you must pay corporation tax on all profits, including those from trading and selling assets or investments.
You need to register for this tax when you form a limited business (within three months of starting to trade).
You must also maintain accurate business records and submit a company tax return before the deadline to ensure that you pay the correct amount of tax, or you can hire an accountant to handle this for you.
From 01 April 2023, the corporation tax rate is between 19% to 25%, depending on business profits.
3. Business rates
Business rates are charged on the majority of commercial properties.
If you work from home and only use a small portion of your house (like one room), you might not be liable for paying business rates.
If you use a significant portion of the property for business, you might be required to pay business rates (e.g. a shop with living space above it).
4. Employers’ National Insurance Contributions
If you hire employees, you have to pay NICs on their salaries. These are called secondary Class 1 NICs,’ in contrast to ‘primary Class 1 NICs,’ which employees pay through PAYE.
Most employee benefits (e.g., private medical insurance, business automobiles) and expenses claimed by them will require you to pay these contributions.
The amount is typically 15% (13.8% for tax year 2024/25) of the employee’s earnings or benefits, while some workers, such as those earning £96 (£175 for tax year 2024/25) or less per week, are exempt.
Use our employer NIC calculator to calculate your NIC liabilities.
What are some of the tax reliefs for small and medium businesses in the UK?
Starting a small business in the UK is an excellent idea because it has low taxes for companies. Here are a few tax reliefs offered to small and medium-sized enterprises.
1. Capital allowances
You can deduct capital allowances from the costs of the assets you purchase for your business.
These assets include machinery, equipment, automobiles and vans. You can reduce your tax burden by deducting the cost of these items from your profits.
2. Research and development tax relief
Research and Development (R&D) tax relief is a deduction in a business tax bill or an amount paid by HMRC. It is based on how much a company invests in R&D initiatives focused on advancing science or technology.
Your net benefit is between 14.7% and 16.2% of your qualifying R&D expenditure.
3. Patent box
If your business has patented inventions and profits from them, you can reduce your corporation tax to 10%.
The relevant income must come from a specific source, such as the sale of patented goods, the licensing or sale of patent rights, the revenue from patent infringement, damages or other compensation resulting from the patent rights, or the use of a patented manufacturing process or tool.
4. Creative industry tax relief
Businesses operating in the creative industry may be eligible for tax relief. This incentive encourages investment while promoting relevant cultural production in the UK.
5. Employment Allowance
If your small business pays Class 1 National Insurance for your employees, you can claim annual savings of up to £10,500 (£5,000 for tax year 2024/25). You cannot claim if you are the only employee in your business or if your employee performs domestic or personal work (unless they are a carer).
Final thoughts
Knowing the difference between micro, small, and medium-sized businesses is essential for conducting better analyses and understanding the functions of each one of them.
If you find it difficult, consult an accountant or expert to help you expand your business, pay the proper tax, understand how to get funds, and much more.
