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New SME threshold reduces red tape for UK firms

4 October 2022

The government has announced that more businesses are to be categorised as SMEs, releasing thousands of UK firms from some reporting requirements as well as future regulations.

From this week, the UK government definition of an SME has changed. Until now, small and medium-sized enterprises (SMEs) were categorised as firms with fewer than 250 employees. On Sunday 2 October, prime minister Liz Truss announced plans to widen this business category to firms with fewer than 500 employees for future and reviewed regulations. It means that an additional 40,000 businesses could have less red tape to deal with, saving them time and money and helping them to grow.

Government research has found that medium-sized businesses - with between 50 and 249 employees - report that they are spending over 22 staff days per month on average dealing with regulation; and over half say that regulations are a burden to their operation.

The government says the exemption will be applied in a proportionate way to ensure workers' rights and other standards will be protected, while at the same time reducing the burden for growing businesses.

The new threshold came into force on Monday this week for all new regulations under development as well as those under current and future review, including retained EU laws. The government will also look at plans to consult in the future on potentially extending the threshold to businesses with 1,000 employees, once the impact on the current extension is known.

The government says this is "the first step in a package of reforms to ensure UK business regulation works for the UK economy". As part of its commitment to reducing red tape, the government's starting assumption when developing new policy is that businesses with less than 50 employees should be exempt from certain regulations. It is now amending this assumption to businesses with less than 500 employees.

Written by Rachel Miller.

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