Subcontracting work for research and development purposes brings many advantages. It allows compa...
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.
According to the Business population estimates for the UK and regions 2022, there are 5.5 million SMEs, which make up 99.9% of UK private sector businesses. 5.47 million of these are classed as “small” (0 to 49 employees) and 35,900 are classed as “medium-sized” (50 to 249 employees).
There are a further 3,880 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).
While reporting the number of SMEs in the UK, the Department for Business, Energy & Industrial Strategy (BEIS) 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 is more specific. The SME scheme 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 apply for tax relief under the RDEC scheme instead.
The government’s statistics show that in 2022, SMEs employed 16.4 million people in the UK, 61% of the total number of people employed by private sector companies.
The government reports that turnover for UK SMEs was £2.1 trillion in 2022, 51% of the total turnover of private businesses.
For the 2020 to 2021 tax year, HMRC estimates that 85,310 Small or Medium-sized Enterprises (SMEs) made R&D claims, 96% of all claims.
78,825 of these made SME scheme claims, which break down as:
As well as this, there were 6,485 SMEs that claimed under the RDEC scheme.
For the 2020-21 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.
21% of SME scheme claims came from London, 11% came from the South East and 11% came from the North West. The table below shows the number and percentage share of SMEs claiming R&D Tax Credits, broken down by region for the most recent tax year.
For the 2020-21 tax year, the majority of SME R&D Tax Credits scheme claims came from just three industries, including Information & Communication (22%), Manufacturing 20% and Professional, Scientific & Technical (19%).
The table below shows the number and percentage share of SMEs claiming R&D Tax Credits, broken down by industry for the most recent tax year.
According to the government’s Longitudinal Small Business Survey: SME Employers – UK, 2021 , 53% of SMEs have women in management roles. This figure breaks down as:
The industries most likely to be led by women are Education (44%), Health (37%), Arts & Entertainment (31%) and Food & Accommodation (29%).
The government’s Small Business Survey reported that 6[DB1] % 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 Health (10%), Admin (9%), Transport (8%), Information & Communication (8%). and Food & Accommodation (8%).
For nearly twenty years, there has been sustained growth in the number of businesses in the private sector with 0-499 employees; however, according to the latest HMRC data, the number of SMEs has declined since 2021. In the table below we show the growth of UK SMEs in the private sector from 2000 to 2022.
We don’t yet have the full data from the 2020-21 tax year; however, we know that in the tax year 2019-20, there was a 4% decrease in the overall number of first-time applicants from the previous year.
The table below shows the number of first-time R&D Tax Credits claimants from 2000-01 to 2019-20.
In the 2021 Small Business Survey, SMEs reported the following obstacles to growth:
According to the government’s 2021 SME Survey:
While many of these innovations just took place within their respective businesses, of the SMEs that innovated process, 20% were new to the industry. Of the SMEs that innovated goods or services, 29% were new to the industry or market. Goods and services innovations new to the industry or market were most likely to come from Manufacturing (45%) or Information & Communications (44%) sectors.
If you enjoyed this article, you might also like our white paper on Research and development (R&D) Tax Credits statistics 2022: What they say about the health of UK R&D.
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