Guidance

Medium sized business regulatory exemption assessment: supplementary guidance

Updated 19 September 2023

This guidance provides further advice on extending the existing presumption of exemption from business regulations, which already applies to small and micro businesses with 0-49 employees (SMBs), to businesses with between 50 and 499 employees (medium-sized businesses), both for future regulations and for legislation being reviewed. Separate guidance will be issued on how the new requirement should be considered as part of the Retained EU Law (REUL) review process, assuming Parliament passes the REUL Bill.

1. Background

The current interim better regulation framework requires departments to consider whether the impacts of regulatory changes on SMBs will fall disproportionately on those businesses and whether such businesses could be exempted from regulation, or the impacts mitigated in some way, without compromising the policy objectives. This requirement is primarily encapsulated in the small and micro business assessment (SaMBA) which forms part of the completion of an impact assessment (IA).

2. New threshold

Departments should now consider the case for exemption of medium-sized businesses in addition to that for SMBs via the completion of an IA. As with SMBs, you should consider the scope of the proposed measure, its impacts, including any disproportionate effects on medium-sized businesses and how these can be mitigated. As with SaMBA, this should be done at an early stage, when considering the options.

The starting assumption from now on is to also exempt medium-sized businesses (50 to 499 employees for these purposes) from the requirements of new regulatory measures. In many cases it may be possible to achieve the majority of the intended policy benefits even if all businesses up to 499 employees are exempted – for example where larger businesses account for the majority of the intended regulated activity or where the activities of larger businesses account for the majority of the harms the regulation seeks to prevent.

If you believe that no mitigating actions are necessary because there is no disproportionate burden or that the policy could not be delivered if these businesses were exempted or the impacts on them mitigated, you must justify this in the supporting analysis.

Where the policy development process – including impact assessment and any consultation and consideration of legal factors – leads departments to conclude that an exemption should not be applied, or should only be applied for businesses under the narrower SMB threshold (under 10 employees for micro or under 50 for small businesses), departments must have a clear rationale and justification for their chosen approach. This may, in particular, be the case where existing regulation is reviewed where the regulatory regime involves the protection or rights of individuals, for example.

3. Additional assessment

An assessment for exempting medium-sized businesses is now mandatory for future domestic regulations and legislation being introduced or reviewed which have an impact on business greater than the ±£5 million EANDCB threshold. You should also consider the impact on these businesses of regulatory policy which is below this threshold, and conduct an assessment where appropriate.

The SaMBA assessment process is not subsumed in this additional assessment. Consideration of particular impacts on SMBs must still be undertaken as a distinct exercise.

4. Write round requirements

If your measure does not affect medium-sized businesses, you should make clear why this is the case when seeking Domestic and Economy Implementation Committee clearance and in the relevant analysis in the IA.

If you are making a case for exemptions not to apply, you will be required to conduct a thorough impact assessment and set out how they would minimise the burdens on businesses.

5. What does the policy cover?

The policy applies to:

a. New regulatory proposals starting the development process from 3 October 2022;
b. Regulations that are undergoing regulatory review from 3 October 2022 - the question of amendments to the threshold for existing exemptions should be considered, and for regulations with no exemptions, the introduction of exemptions should be considered as set out above.

The policy does not apply to any proposals which have already gone through, or are currently going through, the Better Regulation Framework and RPC scrutiny process as at 3 October 2022.

6. RPC scrutiny

For IAs submitted after 3 October 2022, the Regulatory Policy Committee (RPC) will include commentary in their opinions on how well departments are addressing this additional requirement in relation to each individual proposal.

7. Better regulation reforms

This new policy will also be incorporated into the revised better regulation system once the reform of the better regulation framework is completed.