A small business is an independently owned and operated company with a limited number of employees and moderate revenue. These businesses are often run locally and play a vital role in the UK economy offering flexibility, driving innovation, and creating jobs within communities.
In the UK, a business is classed as “small” if it meets at least two of the following criteria:
- Has fewer than 50 employees
- Generates an annual turnover of less than £10.2 million
- Has total assets worth under £5.1 million
This classification helps determine eligibility for various financial support schemes, tax reliefs, and simplified regulatory requirements.
Types of Small Business (With Examples)
There’s no one-size-fits-all when it comes to small businesses.
Some are run by one person. Others might have a small team. But all of them operate on a limited scale and they exist across almost every industry.
Here are the most common types of small businesses in the UK:
1. Sole Traders and Freelancers
This is the most common type of small business in the UK.
A sole trader runs the entire business on their own. They might be a freelance web designer, electrician, personal trainer, or consultant. These businesses are typically easy to start, flexible, and come with lower overheads.
2. Retail Businesses
Think of local shops, online stores, or market stalls. Retail small businesses sell physical products directly to consumers from fashion and gifts to hardware and health goods.
Whether it’s a pop-up boutique or a niche eCommerce site, retail is a huge part of the UK small business landscape.
3. Service-Based Businesses
These businesses sell time, skill, or expertise.
Examples include:
- Hair salons and barbers
- Cleaning services
- Mobile mechanics
- Delivery drivers
- Trades like plumbing or painting
They usually operate locally and rely on repeat business and referrals.
4. Hospitality and Food Services
Small food businesses are everywhere and often the heart of their community.
These include:
- Cafés
- Bistros
- Street food trucks
- Local catering services
They may serve small areas but can build powerful brands through great service and local word of mouth.
5. Professional Services
This includes businesses offering specialist skills and operating on a small scale.
Examples:
- Accountants
- Solicitors
- Bookkeepers
- Digital marketing agencies
- IT support companies
They’re usually run by experienced professionals serving other businesses or individuals.
6. Manufacturing and Craft-Based Businesses
Some small businesses produce goods themselves from scratch or in small batches.
These include:
- Artisan candle makers
- Jewellery designers
- Small-scale furniture makers
- 3D printing services
- Natural skincare brands
They often sell online, at local markets, or through wholesale partnerships.
Whether you’re building an online shop or offering local services, the small business model you choose will shape your growth path.
Advantages of Being Classed as a Small Business
Being officially recognised as a small business in the UK offers a range of benefits that can help you save money, stay competitive, and grow efficiently.
1. Access to Financial Support
Small businesses are often eligible for government-backed funding options, including grants, low-interest loans, and tax incentives. You may also qualify for tailored finance options such as merchant cash advances, which provide flexible funding based on future sales.
2. Simplified Tax and Reporting
The UK offers simplified tax processes and financial reporting for small businesses. This includes reduced corporation tax, business rate relief, and streamlined digital reporting through Making Tax Digital (MTD).
3. Greater Business Flexibility
Smaller businesses can adapt to change faster. Whether it’s shifting your business model, updating your services, or responding to customer needs, being small often means fewer layers of approval and quicker action.
4. Access to Support Services
Local councils and business support organisations provide small businesses with access to training, mentorship, legal advice, and marketing support. These services are often free or subsidised, helping you grow sustainably.
5. Reduced Regulatory Burdens
In some cases, small businesses are exempt from certain regulations that apply to larger firms. This can include simplified employment rules, environmental reporting exemptions, and less complex corporate governance requirements.
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