SME (Small and Medium Enterprise)
A business with fewer than 250 employees and turnover below £44 million; central to UK procurement policy and CCS spend targets.
Definition
An SME (Small and Medium Enterprise) is a business with fewer than 250 employees and an annual turnover below £44 million (the UK statutory definition aligned with EU SME thresholds). SMEs are a central focus of UK government procurement policy: Cabinet Office targets require contracting authorities to report annually on the proportion of contracts awarded to SMEs, both directly and through supply chains. Many frameworks have no minimum turnover requirement specifically to improve SME access.
How it works in practice
UK central government has a 33 percent SME spend target (direct plus indirect) and reports annually on progress. Local authorities and NHS trusts increasingly set their own SME targets, often higher than central government. The mechanisms supporting SME participation include: lotting (subdividing frameworks so smaller suppliers can win specialist lots), maximum turnover caps in selection criteria (typically twice the contract value, capping financial standing requirements), simplified Selection Questionnaire for sub-threshold work, prompt payment terms (30 days under PA 2023 with reporting obligations down the supply chain), and SME-friendly market engagement events. The Procurement Act 2023 strengthens SME measures including a duty to consider barriers to SME participation in procurement design, transparency on prompt payment performance throughout the supply chain, and simplified procedures for sub-threshold work. SMEs bidding into public sector should leverage the policy mechanisms: bid for relevant lots rather than the whole framework, apply for frameworks with no turnover caps, and evidence prompt payment performance as a competitive differentiator. Trade bodies like the Federation of Small Businesses and Make UK SME publish annual data on SME procurement performance that bidders can cite as context for their own offerings.
Common questions
What is the UK SME definition?
Fewer than 250 employees AND (turnover below £44 million OR balance sheet total below £38 million). The thresholds derive from the EU SME definition adopted into UK law. Smaller subcategories: micro (under 10 employees, turnover under £2 million); small (under 50 employees, turnover under £10 million); medium (under 250 employees, turnover under £44 million).
What is the UK government SME spend target?
33 percent of central government spend (direct plus indirect through supply chains) by 2022, with progress reports published annually. Some departments have set higher targets. Local authorities and NHS trusts set their own targets, often higher: many target 50 percent or above of direct spend on SMEs and voluntary sector providers.
How does the Procurement Act 2023 help SMEs?
PA 2023 mandates 30-day payment terms in public contracts with reporting obligations through the supply chain, requires authorities to consider barriers to SME participation in procurement design, simplifies sub-threshold procedures, and publishes supplier conduct data including prompt payment performance. The Act represents the most pro-SME UK procurement reform in recent years.