The UK’s business landscape is made up of 5.5 million enterprises, within which there are over 1 million micro-businesses employing up to 10 staff. Throw sole traders into the barrel as well, and that figure’s closer to 5.2 million...
It's clear then that micro-businesses (or micro-enterprises) make up a huge slice of the UK’s business population. They play an important role in the economy and in peoples’ daily lives.
It’s worth getting under the skin of what makes a business a micro-business. Given a closer look, they reveal some interesting trends...
The UK's micro-business landscape at a glance
All statistics are up-to-date at the time of publishing.
- The UK has 5.5 million businesses, 1.16 million of which are micro-businesses with up to 10 employees.
- Small businesses (including micro-businesses) are the largest group in terms of size (5.45 million). They make up 99.2% of the UK's businesses.
- The second-largest group are 'non-employing businesses' (ie sole traders) of which there are 4 million. This is followed by medium-sized businesses (37,800) and large businesses (8,250).
- If you count both sole traders and micro-businesses with employees, the UK has 5.2 million micro-businesses in total
- Micro-businesses provide employment for 20% of the UK's workforce
Small difference?
There’s a temptation to think of micro-businesses and small businesses as being little and the same. Especially when you see them grouped together with small businesses in stats reports. Or even SMEs (small-to-medium enterprises).
Beyond the headline stats, though, there are some crucial differences between micro-businesses and small businesses which may influence how they operate and the kind of support they need.
Best start with some definitions…
What is a micro-business?
According to HMRC, for a business to be registered with Companies House as a ‘micro entity’ (their official term for a micro-business or micro-enterprise), it has to meet at least two criteria:
- up to 10 employees
- a maximum turnover of £632,000
- £316,000 or less on its balance sheet.
Obviously, HMRC has to draw a firm line between micro-businesses and small businesses for tax and accounting purposes. So its definition of a micro-business is bound to be prescriptive.
However, micro-business definitions can and do vary. Citizens Advice, for example, set the maximum turnover for a micro-business at £1.8 million. Energy companies have their own criteria, too, based on gas and electricity consumption.
Some stats reports will also treat sole traders as separate entities while others include them in small business or micro-business categories. (The best, of course, will show you both.)
What's the difference between a small business and micro-business?
To prevent confusion between larger small businesses and micro-businesses, it’s worth referring back to HMRC. By their reckoning, for a business to be classified as a small business, they must have at least two of the following:
- up to 50 employees
- a maximum turnover of £10.2 million
- £5.1 million or less on its balance sheet.
Clearly, ‘small' businesses aren’t that small. Especially when compared with micro-businesses. A property law firm, for example, might employ only four staff members yet generate enough revenue to be registered as a small business.
In the same way, a young and ambitious pasta box subscription start-up can’t call itself a small business simply because it employs more than 10 people. As far as HMRC’s concerned, it’s a micro-business until it turns over £632,000 or has assets on its balance sheet worth up to £5.1 million.
Compared to larger small businesses, finance and marketing can be an issue for micro-businesses. Because they don't have large amounts of capital to play with, accessing financing, running marketing campaigns, and building up profitable connections can be more difficult.
That said, micro-businesses are usually able to foster a close relationship with their customers, using a mixture of social media, word of mouth, and enduring customer loyalty to fuel their business.
Are sole traders and freelancers classed as micro-businesses?
Ultimately, the differences between larger small businesses and micro-businesses stretch beyond company size, turnover, and assets.
They play very different roles in the UK’s business landscape. Both in terms of structure and in the services they offer.
In terms of types of businesses, there’s lots of variation within the micro-business community. And especially if you count freelancers, sole traders, and side hustlers within that demographic as well.
For example, a micro-business could be a marketing consultant who’s left their firm to go it alone. Or a café employing eight members of staff.
What about SMEs?
According to most stats reports, an SME (small-to-medium enterprise) can have anywhere between 1-249 employees. Which technically means all micro-businesses are SMEs too.
SMEs are a broad but important category when gauging the UK’s business landscape. The stats speak for themselves: 99.9% of all UK businesses are SMEs. Plus, they generate over half (52.5%) of the UK’s total business turnover and account for 60% of its employment.
How many micro-businesses are in the UK?
At the start of 2024, the UK’s business population was 5.5 million. Of those, 5.45 million were small (1-49 employees), 37,800 medium-sized (50-249 employees), and 8,250 large businesses (250+ employees).
According to those stats, small businesses (including micro-businesses) make up 99.2% of all UK businesses.
However, seperate micro from small and it becomes clear that micro-businesses outnumber larger small businesses by a wide margin. Then, the UK has around 1.16 million micro-businesses and only 220,000 small businesses.
Throw sole traders (AKA ‘non-employing businesses’) into the mix and things get even more interesting. As there are over four million sole traders in the UK, this puts the total number of micro-businesses at 5.2 million.
What's the turnover for a UK micro-business ?
First, let’s look at the average turnover for a business of any size in the UK. In 2023, the average UK business earned £806,000 a year. The turnover was 50% higher in London, at £1.2 million.
Per worker, this works out to an average turnover of £162,751. Or £228,000 for those working in London.
However, the total turnover of all UK businesses was £4.48 trillion. Small businesses contributed 15% to that pot, micro-businesses 13%, and sole traders 7%.
The biggest contributors were large businesses, representing just 0.14% of businesses but generating 46.6% of the UK's business turnover.
Growth and trends
It's worth noting that, in terms of numbers, employing micro-businesses have declined slightly since 2022. Prior to that year, they'd peaked at 1.18 million.
Nobody knows exactly what's in store for the UK's micro-businesses. But when micro-business owners were asked what their expectations for the following year were, over half (53.5%) expected their turnover to stay the same. Meanwhile, 17.5% expected it to increase and 13.6% to decrease.
Certainly, this is a more positive outlook compared to that of previous years. In 2021, a report claimed that micro-businesses in the UK were more impacted by the COVID-19 pandemic than any other sized business, with 10% facing temporary or permanent closure.
Taking care of (micro)business
We're here to protect micro-businesses from all manners of risks and are happy to offer our advice. If you're not sure how to go about protecting your micro-business, you can have a read through our guide to the different types of insurance small businesses need.
Otherwise, give us a call on 0345 561 0320 and one of our friendly advisers will help you out.
Image used under license from Shutterstock.
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