What is a Micro Business?
Do you know the definition of a micro business? Your business may be a micro business if you have under 10 employees or a low annual turnover. We explain what a micro business is and what this could mean for your company.
Micro businesses make up the majority of small and medium-sized enterprises (SMEs) in the UK. They are a key part of the business landscape and account for almost a third (32%) of all employment across the country.
But what is a micro business? In this article, we look at the different definitions of a micro business from a range of organisations and explore what being a micro business can mean for your company.
What is the definition of a micro business?
Generally speaking, a micro business is a type of small business with fewer employees – typically 10 or less – and a smaller turnover than other SMEs. Different rules and guidelines may apply to micro businesses compared to small businesses.
Definitions of the term ‘micro business’ can vary slightly between organisations and the definition that applies to your business at any given time may depend on the context. For example, you’ll likely be using a slightly different definition if you’re dealing with a business energy supplier than you would with HM Revenue & Customs (HMRC).
The European Union (EU) definition of a micro-enterprise, or micro business, is a company that:
- employs fewer than 10 people; and
- has a turnover or annual balance sheet of no more than €2 million
The Financial Conduct Authority (FCA), the body responsible for regulating financial services in the UK, also defines a ‘micro-enterprise’ using these criteria.
The Office for Gas and Electricity Markets (Ofgem) uses the EU definition of a micro business. For the purposes of gas and electricity, a micro-enterprise is also a company that:
- has fewer than 10 employees; or
- has an annual turnover or balance sheet not exceeding €2 million
However, if your business doesn’t meet the above criteria, Ofgem may still consider it a micro business if it:
- uses a maximum of 100,000 kWh of electricity annually; or
- uses a maximum of 293,000 kWh of gas annually
This usage criteria apply to business electricity and business gas separately. For example, if your business uses more than 100,000 kWh of electricity a year, but less than 293,000 kWh of gas, it would be classed as a micro business for electricity but not for gas bills.
If your fuel suppliers class your business as a micro business, different rules may apply to your business energy contracts compared to SMEs. You may be able to switch business energy suppliers more easily without needing to give notice, for example.
Micro businesses may also benefit from greater protections when dealing with brokers or accessing competitive tariffs compared to larger businesses.
» COMPARE: Business energy
Companies Act 2006 definition
The Companies Act 2006 uses the term ‘micro entity’ for the smallest businesses. It defines a micro entity as meeting at least two of the following criteria:
- Your company’s annual turnover does not exceed £632,000.
- Your business has £316,000 or less on its balance sheet.
- You have 10 or fewer employees.
This definition is used when dealing with Companies House and HMRC – for example, when submitting your company accounts as part of your Company Tax Return.
The requirements for micro-entity accounts can differ from those for larger businesses. Micro businesses can prepare simpler accounts and only have to send a balance sheet to Companies House. What’s more, micro businesses do not have to send a profit and loss account and may, like small businesses, be exempt from audits.
Certain business types are not classed as micro entities by Companies House, including limited partnerships, public limited companies, overseas companies, unregistered companies, or charitable companies.
How many micro businesses are there in the UK?
It can be difficult to pin down an exact figure for how many micro businesses currently exist in the UK. However, the Department for Business, Energy and Industrial Strategy estimates that there are over four million businesses with no employees and over one million businesses with between one and nine employees.
On employees alone, 95% of UK businesses could be classed as micro businesses, a figure that gives some indication as to how many businesses could be categorised as micro businesses in the UK.
» MORE: How to grow your business
Is a micro business an SME?
Yes, a micro business is an SME. However, not all SMEs are micro businesses.
The specific thresholds depend on which organisation you’re dealing with. Your business could count as a micro business according to one organisation, but a small business according to another. It’s worth checking if your business counts as a micro business in all circumstances, and being aware if, and where, it does not.
For example, if you had 15 employees and an annual turnover of €3,000,000, your business would exceed the EU definition of a micro business. However, it would still count as a small business, as the EU definition of a small enterprise has an upper limit of €10 million annual turnover and 49 employees.
» MORE: What is an SME?
Why is it important to know if my business is a micro business?
Knowing whether your business is a micro business or micro entity can help you understand the rules and guidelines that apply to you.
For example, micro entities can file simpler accounts to Companies House and HMRC. What’s more, micro businesses have more protections in the business energy market than larger SMEs and other businesses.
The size of your business and factors such as your annual turnover may also affect your eligibility for funding, such as business loans or small business grants.
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Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more