Small and medium-sized enterprises (SMEs) are the lifeblood of innovation in the UK. We’ve dived into the most recent SME statistics, exploring their contribution to the UK economy.
How many UK SMEs are there?
According to the government’s Business Population Estimates for the UK and Regions 2024 report, there are 5.49 million SMEs, which make up 99.8% of UK private sector businesses. 5.45 million of these are classed as “small” (0 to 49 employees) and 37,800 are classed as “medium-sized” (50 to 249 employees).
There are a further 4,205 businesses that could potentially be classed as SMEs for R&D Tax Credits purposes as they employ between 250 to 499 people (if they fulfil the rest of the criteria – see below).
What is the definition of an SME for R&D Tax Credits purposes?
While reporting the number of SMEs in the UK, the Department for Business, Energy & Industrial Strategy uses the basic criteria of between 0 to 49 employees for a small business and 50 to 249 employees for a medium-sized business.
For applying for R&D Tax Credits, the definition of an SME in the UK is more specific. For tax purposes, HMRC defines small and medium-sized enterprises as having a headcount below 500 and a turnover of under €100m, or a balance sheet that totals less than €86m (regardless of the number of employees). There are several rules that might prevent an SME from applying through the SME scheme, such as if the company’s R&D is subsidised, or if they are conducting R&D as subcontractors. Under these circumstances, SMEs would usually apply for tax relief under the RDEC scheme (if they were claiming for accounting periods starting before 1 April 2024).
The process becomes simpler for accounting periods starting on or after 1 April 2024, when SMEs must apply for R&D relief through a new single scheme that merges both the SME scheme and RDEC – except when they are classed as being an “R&D intensive” SME, meaning that their R&D spend makes up 30% of their total expenditure (in which case, they’re eligible for enhanced R&D intensive support).
You can read about the full criteria for qualifying as an SME for tax relief on our SME scheme page.
How many people in the UK are employed by SMEs?
The government’s statistics show that in 2024 SMEs employed 16.6 million people in the UK, 60% of the total number of people employed by private sector companies.
What is the turnover of SMEs in the UK?
The government reports that turnover for UK SMEs was £2.8 trillion in 2024, 52% of the total turnover of private businesses.
How many SMEs claim under the R&D Tax Credits scheme?
For the 2022-2023 tax year, HMRC estimates that 62,015 small or medium-sized enterprises (SMEs) made R&D claims, 94% of all claims.
55,325 of these made SME scheme claims, which break down as:
23,805 claims for a deduction from Corporation Tax liability
31,520 claims for a payable tax credit
As well as this, there were 6,690 SMEs that claimed under the RDEC scheme.
Where are SMEs conducting R&D in the UK?
For the 2022-23 tax year, 89% of businesses who made SME R&D Tax Credits scheme claims were from England. 3% were from Wales. 5% were from Scotland and 3% were from Northern Ireland.
22% of SME scheme claims came from London, 15% came from the South East and 10% came from the North West and another 10% from the East of England. The table below shows the number and percentage share of SME scheme claims, broken down by region.
SME R&D Tax Credits scheme claims by region 2022-2023
Region
Number of SME scheme claims 2022–23
% of SME scheme claims 2022–23
North East
1,680
3%
North West
5,515
10%
Yorkshire and The Humber
3,985
7%
East Midlands
3,305
6%
West Midlands
4,270
8%
East of England
5,610
10%
London
12,425
22%
South East
8,165
15%
South West
4,295
8%
Wales
1,630
3%
Scotland
2,885
5%
Northern Ireland
1,400
3%
Unknown
170
0%
Total
55,325
100%
Which industries benefit the most from the SME Research and Development (R&D) scheme?
For the 2022-23 tax year, the majority of SME R&D Tax Credits scheme claims came from just three industries, including information & communication (25%), manufacturing (23%) and professional, scientific & technical (16%).
The table below shows the number and percentage share of SME scheme claims, broken down by industry.
SME R&D Tax Credits scheme claims by industry 2022-2023
25% were ‘equally-led’, with the same number of men and women in management roles
9% had a minority of women in management roles
The industries most likely to be led by women are health/social work (39%), education (32%) and arts/entertainment (24%).
How many SMEs are minority ethnic group-led?
The government’s Small Business Survey reported that 7% of SMEs were led by a management team with at least half of its members from minority ethnic groups. The industries most likely to be led by members from ethnic minority groups are transport/storage (11%), health/social work (9%), administrative/support (9%) and financial/real estate (9%).
Is the number of SMEs in the UK declining?
For nearly twenty years, there was sustained growth in the number of S in the private sector with 0-499 employees; however, according to the latest HMRC data, the number of these SMEs declined from 2021 to 2022, from 5.59 million to 5.51 million, with brief growth in 2023 up to 5.55 million, before declining again in 2024 to 5.50 million.
In the table below we show growth of UK SMEs in the private sector from 2010 to 2024.
SMEs in the private sector with 0-499 employees, UK 2010 to 2024
How many businesses are first-time applicants for the SME R&D Tax Credits scheme?
We don’t have the full data from the 2022-23 tax year; however, we know that in the tax year 2021-22, there were 13,135 first-time SME scheme applicants, down from 16,170 in 2020-2021 – a 19% decrease.
The table below shows the number of first-time R&D Tax Credits claimants from 2000-01 to 2022-23.*
First-time SME scheme applications, 2000-01 to 2022-23
*Note: the number of first-time SME scheme applications for 2022-23 is only partial and will be revised by HMRC at a later date.
What do SMEs see as their main obstacles to growth?
Taxation, VAT, PAYE, National Insurance, business rates (45%)
Staff recruitment and skills (40%)
Regulations/red tape (41%)
Late payment (32%)
UK exit from the EU (30%)
Other issues relating to costs (30%)
National Living Wage (27%)
Obtaining finance (20%)
Availability/cost of suitable premises (19%)
Workplace pensions (12%)
How many SMEs use external finance?
The 2023 Small Business Survey reported that around three-quarters of SMEs (73%) use some form of external finance. This is down from 75% in 2022.
How are SMEs most likely to innovate through R&D?
According to the government’s 2023 Small Business Survey , 21% of SMEs innovated through improving processes for producing or supplying goods or services in the last three years. Of these:
19% were new to the industry
79% were new to the business
Innovation was most likely to come from manufacturing (33%), information and communication (29%), professional scientific (29%) and administration (28%).
Goods and services innovations new to the industry or market were most likely to come from construction, (42%), manufacturing (42%) or information & communications (51%).
Proportionally by nation, innovation was slightly higher in Wales (22%) and England (21%) than in Scotland (19%) and Northern Ireland (19%).
