A look at what new legislation on UK SMEs means for small businesses
When looking back, the year 2020 saw numerous events that had a huge impact on business in the UK. Not only did the 31st of January signal the exit of the nation from the EU, but it was the end of the first long year of a global pandemic that prompted a significant number of changes in the UK workforce. Just two years later, new legislation was enacted that defined SMEs in the UK which also has an impact on small businesses, needless to say. With the current legislation only in force since the 3rd of October 2022, there is still a bit of confusion as to what this means for small businesses and how they are defined today.
The primary differentiation from the EU definition
What stands out as the most ‘significant’ differentiation between the EU’s definition of SMEs and the new UK legislation is the number of employees defining each level and their respective financial turnover or balance sheets. To put it simply, the EU defines an SME as any business with less than 250 (249) employees. Until the new legislation, numbers were the same in the UK but now an SME is defined as any business numbering less than 500 (499) employees on payroll.
What falls within the category of an SME, however, is really the only differences in definitions. The numbers remain the same and are still listed as:
- Micro business – Employees numbering 0 to 9.
- Small Business – Employees numbering 10 to 49.
- Medium Businesses – Employees numbering from 49 up to 249 in the EU and from 49 up to 499 in the UK.
Also, as mentioned above, financial turnover and balance sheets are still noted in £s and not in €s. This should not come as a surprise because the UK never adopted Euros as their currency.
Rules and regulations
This legislation could have an impact on various departments within a company. It is at this point that it could be advisable for every small business to either have an inhouse or outsourced HR department. The reason for this is clear when you consider how rules and regulations affect procedural policies as documented in an employee handbook. For example, HR plays a key role in producing an employee handbook, the content of which must comply with specific rules on disciplinary actions and/or grievances as set forth in the ACAS Code.
With this being said, it is vital to understand that any content must be kept current if employees are meant to sign receipt of the company policies handbook and again, that is one of the key duties of HR. Rules and regulations regarding breaks and leave time remain the same as well. There is no denying the need for an employee handbook when it is imperative that company policies be adhered to for smooth and consistent operations.
What this means in regard to Companies House and reporting
Most small businesses will find that the biggest difference is in reporting to Companies House and here again, HR will play a key role. This is also one of the reasons why so many businesses choose to outsource HR. With an inhouse team, it puts pressure on the company to keep HR staff updated on all changes in legislation as they occur. The cost could be significant in terms of sending staff to workshops and training as these changes are legislated.
With an HR team that focuses solely on HR, they are always kept apprised of any changes in legislation that affects UK businesses no matter how minor they may seem when announced. Some of the most grievous errors in reporting are the result of not keeping abreast of such things as what makes a business a small or medium size enterprise. Few things can threaten the life of a business quite like errors in reporting and we all know, it doesn’t take much to anger the Taxman!
A final word on tax breaks and incentives
There is one final thing to be aware of in regard to this new legislation and that would be tax breaks. Here the laws may vary depending on what is defined as an allowable tax break or incentive based on the size of a business. Understanding these regulations often falls squarely on two main departments, both of which are often outsources for the very same reasons. Not only is it more cost-effective to outsource both accounting and human relations, but they are most likely to be kept apprised of new regulations as they are enacted. In the end, it really all boils down to exactly what size a business is and how the new legislation affects each SME in the UK.
