SME Statistics 2026: how many small businesses are in the UK?

Starting a business in the UK is full of opportunities, but following a tough period in 2025, it won’t come without challenges.

More people than ever are taking the leap and launching new ventures, but rising costs, new rules, and fast-changing tech mean business owners need to stay on their toes.

From new employment laws and digital compliance to the rise of AI and keeping up with the market, there’s a lot to navigate for anyone starting a business today.

To help you embark on your next steps with confidence, we’ll arm you with the small business statistics you need to know for 2026, including where most failures are occurring, which industries are poised for growth, and what common barriers to overcome.

What’s the outlook for small businesses in 2026?

The outlook for small businesses in 2026 is a mix of optimism and concern.

On the positive side, the UK Government has announced several support packages for SMEs. This includes a support package for pubs that will slash business rates by 15%, increasing investments for scaleups to prevent moving abroad or selling to foreign rivals, and free apprenticeship training for SMEs.

That said, businesses are contending with several expensive headwinds. For example, US President Donald Trump has threatened to impose tariffs of up to 25% on UK goods unless his wish to buy Greenland is granted.

Additionally, the 2025 Autumn Budget announced further hikes to business rates (excluding pubs), a 4.1% increase to the National Minimum Wage, and increases to dividend tax rates.

The ongoing rise of AI technology

Meanwhile, the adoption of artificial intelligence (AI) continues to rise in the UK, as 52% of businesses now use AI, with at least one business on average embracing the technology every 60 seconds.

As for its specific usage, Moneypenny reports that 46% of businesses use it for analytics and reporting. This was followed by customer support and chatbots (45%), content creation (44%), and productivity and automation (42%).

For example, AI-powered predictive analytics — which analyses both historical and real-time customer data with AI to forecast likely actions — is becoming a must in 2026. 86% of marketers already use it to anticipate customer behaviour, with tools like Smart Notes and Sentiment Analysis picking up emotional cues in real-time, so that teams can respond in the best way.

Inflation vs wage growth

While the Consumer Price Index reports a 3.6% rise in inflation in the 12 months to December 2025. the Bank of England is gradually cutting interest rates. As of 18th December 2025, its official bank rate is currently 3.75%, making borrowing easier for SMEs.

While moving slowly, wage growth continues to outpace inflation. The average regular earnings for employees grew by 4.5% in the three months to November 2025.

This puts more disposable income back into consumer spending and directly boosts business bottom lines. While challenges persist, including steadily rising labour costs and changes to business rates, the economic environment is generally more stable, providing fertile ground for new business owners.

How many small businesses are there in the UK?

According to the most recent government estimates, there are 5.64 million small businesses in the UK — making up 99.18% of the total business population.

Of these small businesses, 12,900 of these have employees, while 27,300 don’t have any at all. This is likely due to the rise of solopreneurship, as there are around 4.1 million sole traders in the UK, while 46% of UK adults have started a side hustle as an additional source of income in 2026.

The latest government estimates also found that the number of sole proprietorships has increased by 5% in the last year. On the other hand, the number of limited companies has declined slightly, as government statistics report a 0.08% decrease in companies in England and Wales, 0.31% in Scotland, and 0.68% in Northern Ireland.

Here’s a breakdown of UK private sector businesses, broken down by business type, based on the latest GOV.UK figures:

Business type	Size (number of employees)	Number	Turnover (millions)
Small	0-49	5,643,495	2,828,662
SMEs	0-249	5,681,930	2,828,662

How has the number of UK SMEs changed?

The trajectory of UK SMEs has been growing at a steady pace for the past two decades. When records began in 2000, the overall number of private sector businesses stood at 3.5 million. Skip to the current day, and the overall population has swelled to 5.5 million, representing an impressive growth of 59%.

The UK’s small business growth has been anything but linear, however. Within this timeframe, 2010 onwards saw a particularly strong expansion, with the total number of businesses peaking at nearly 6 million at the start of 2020.

The COVID-19 pandemic then halted this growth, prompting a significant contraction of 8% from 2020 to 2024. This was largely driven by a significant decrease (10.9%) in non-employing businesses.

Are people starting more businesses in 2026?

In short, yes – entrepreneurial spirit is surging in the UK in 2026.

According to the Office of National Statistics (ONS), 71,935 businesses were added to the Inter-Departmental Business Register (IDBR) in Q4 2025.

Growth was recorded among most UK business sectors, with 15 out of the 16 main industrial groups seeing an increase in creations – the most significant being the transport and storage industry, which was up by 17.2%.

How many UK businesses are closing?

In the fourth quarter of 2025, ONS reported 65,750 business closures, with 9 out of 16 of the main industrial groups showing a decrease in closures. As with business creations, the most significant decline in closures came from the transportation and storage industry, with closures down by 20.5%.

Exploring the new businesses in the UK

According to further ONS data, the professional, scientific, and technical activities sector remains the largest among VAT and/or PAYE-registered businesses. This broad category, which includes diverse areas like IT consultancy, accounting, legal services, and research & development, accounted for 15.3% of all registered businesses in the UK.

This sector was closely followed by wholesale and retail, which made up 14.5% of registered businesses, and construction, which accounted for 14.1%.

Which sectors are growing the fastest – and the slowest?

According to data from IBISWorld, these are currently the fastest-growing sectors in the UK by revenue:

Industry/sector	Revenue growth
Immersive Technology (VR/AR)	26.2%
Language Learning Software	20.1%
Food-Service Contractors	18.5%
Fraud Detection Software	18.0%
3D Printing & Rapid Prototyping	15.5%
CRM System Providers	15.2%

Unfortunately, growth isn’t being recorded across the board. Here are some UK sectors that have been struggling in recent years:

• Agriculture and farming: the total income from farming is predicted to fall by £1.9bn in 2026, primarily due to weak commodity prices, increasing fertiliser costs, and the erosion of support payments through inflation.
• Commercial construction: Business investment for commercial construction is forecasted to shrink by 0.6% in 2026, driven by global uncertainty and tariff disruption.
• Retail & consumer-facing services: in early 2026, 36% of retail businesses reported a decrease in turnover, as higher taxes and “fiscal tightening” are pushing shoppers to cut back on non-essential spending.
• Manufacturing (specific sub-sectors): according to IBISWorld, projected revenue for wire and cable manufacturing is expected to decrease by 1%, followed by 0.5% for electric lightning equipment manufacturing.

How many people do SMEs employ?

According to government data, total employment for SMEs is 16.9 million, while employment for small businesses is 13.1 million.

Zooming out, SMEs as a whole accounted for 60% of all national employment and contributed to an estimated £2.8 trillion in turnover, highlighting their critical role in the UK’s employment landscape and wider economy.

Yet, despite almost making up half of the nation’s jobs, SME employment has slowed significantly. With the UK’s unemployment rate hitting 5.1% in November 2025, hiring dropped to 2.0% in the same period — a significant decrease from 7.6% in the previous year. This is likely attributed to the hikes in National Insurance Contributions (NICs) in April 2025, which increased the cost of hiring and forced many small businesses to put recruitment plans on hold.

Which UK business sector employs the most people?

According to data from ONS, the Health and Social Work sector continues to be the largest employer in the UK.

Industry	Estimated jobs
Human health & social work	5,028
Wholesale & retail trade	4,628
Professional, scientific & technical	3,471
Education	3,115
Accommodation & food services	2,604
Manufacturing	2,511

According to the House of Commons Library, the sector accounts for a staggering 22% of all jobs held by women, reflecting deep-rooted societal expectations about caregiving roles in the UK.

It was also reported by its Business Statistics report that construction was the largest sector in terms of number of businesses, making up for 15.8% of companies in 2025. This was followed by professional, scientific and technical services (13.7%) and wholesale and retail (10.2%).

What’s happening with SME finance and funding in 2026?

A January 2026 study by Santander revealed that four in five businesses plan to seek external finance this year, with 47% expecting to raise over £1m.

However, securing business finance continues to be a challenge, with 41% of founders citing high borrowing costs as the main obstacle, followed by the complexity or length of application processes (30%).

Female entrepreneurs are also more likely to face these barriers compared to males, with 48% and 40% reporting higher costs and complicated processes, respectively.

Additionally, some sectors are notably more reliant on external financing than others. Swoop Funding reports that the wholesale and retail industry has the most debt in the UK, with £374m in debt owed. Finance and insurance ranked second, with around £312m owed across 360 businesses.

What challenges are small businesses facing this year?

Unfortunately, the road to small business success is often paved with challenges. While UK SMEs continue to drive innovation, employment and economic growth, many are heading into 2026 facing a tough operating environment.

In 2026, the main concerns for UK small businesses are:

1. The “Employment Rights” Revolution

With the Employment Rights Bill becoming law in December 2025, the implementation of the bill throughout the year will see the introduction of new compliance requirements and administrative costs for employers.

From April 2026, sick pay and parental leave will become “day one” rights, increasing the cost of short-term absences. Meanwhile, the extension of time allowed to bring an employment tribunal claim from three to six months has increased the long-tail legal risk for smaller employers, and new restrictions on zero-hour contracts and shorter mandatory probation periods are forcing a rethink of flexible staffing models.

2. Mandatory digital compliance (MTD & DMCC)

Small businesses must also prepare for two major mandates coming into force this year — Making Tax Digital (MTD) and the Digital Markets, Competition and Consumers (DMCC) Act.

With MTD being introduced in phases, sole traders earning income over £50,000 will be required to submit quarterly updates to HMRC through compatible accounting software from April 2026.

At the same time, businesses using subscription models must make pricing and renewal terms easy to understand, send reminders before free trials or auto-renewals end, and offer customers “one-click” cancellations without unnecessary hurdles.

3. The AI “skills and security” gap

While 66% of SMEs report being excited by AI technology, the initial hype has also given way to practical implementation problems.

Specifically, smaller firms may struggle to compete with larger corporations for staff with AI and data skills, leading to a widening productivity gap. According to the AI Labour Market Survey, 97% of respondents identified at least one skills gap in the AI market.

Moreover, small businesses are becoming primary targets for AI-driven phishing. The average cost of a cyber attack for an SME has risen to over £8,000, and many businesses are turning to cyber insurance to tackle the problem — making it an essential but expensive cost.

What’s next for UK small businesses?

The challenges facing UK small businesses are undeniable, yet the data consistently points to a remarkable resilience. Far from simply enduring hardship, businesses are actively strategising, diversifying, and innovating.

From steady upticks in consumer spending to lowering borrowing costs, 2026 is bringing new opportunities to businesses too, offering clear pathways for growth and renewed stability.