A Standard Industrial Classification code or SIC represents a way of classifying companies by business activity.
Every company in the UK must choose a SIC code that most closely represents their area of business when providing annual returns to Companies House, such as ‘Sports facility operation’ or ‘IT consultancy’, for instance.
The UK system was introduced in 1948 and is officially known as United Kingdom Standard Industrial Classification of Economic Activities, or UKSIC. This was based off a similar system introduced in the United States in 1937.
UK SIC codes have been through several revisions – 1958, 1968, 1980, 1992, 1997, 2003, and most recently 2007, to bring them in line with the United Nations’ ISIC standard and the European Union’s NACE system.
These classifications are used by government agencies such as The Office for National Statistics (www.ons.gov.uk), who gather data based on these classifications to publish statistics and bases their Average Weekly Earnings output based on SIC code categories, and other third parties.
The problem with SIC codes
The issue with SIC codes is they were never intended to classify today’s type of business activities, rather the processes that were used by a company, and have been slow to catch up with the transformation of the economy from manufacturing to information and service sectors.
The successive revisions have spawned a list, that in the standard currently in use, SIC 2003, includes categories as niche as ‘Manufacture of Sewing Threads’ and ‘Manufacture of Prepared Unrecorded Media’, to the impossibly vague and catch-all classifications ‘Other Computer Related Activities’ and ‘Other Service Activities’.
In our research the most widely used category, and used by almost a fifth of active companies, is ‘Other Business Activities’, highlighting the deficiency of the current system.
Developed in conjunction with the EU member states and business groups, the SIC 2007 standard seeks to rectify some of the shortcomings of the previous classifications. Thankfully ‘Other Business Activities’ is no longer a valid description of business activities.
In the hope of making the classifications more relevant (though likely more confusing), there are over 100 new categories to choose from. They haven’t completely dispelled with problems of the past.
Technology related industries still seem hopelessly inadequate with classes such as ‘Business and Domestic Software Development’ and ‘Web Portals’. The main benefit will likely be in the form of improved data collection for analysis by government agencies.
SIC codes and your business
Confusingly, despite the name Companies House is not adopting the SIC 2007 standard till next month. All annual returns made up after October 1st 2011 will be required to use the new codes.
The current 4-digits codes will be replaced by 5-digit codes and any annual returns submitted with the previous codes will be rejected. You need not rush to choose a SIC code or state the nature of your business before you register your business however.
You are only required to state a SIC code upon submitting your annual return, to be completed within 28 days after the anniversary of incorporation of a company.
You may choose more than one SIC code if your business activities are not adequately covered by a single classification. You can download a copy of the official SIC 2007 Explanation here.