UK business closures rise amid inflation and tax hikes

The UK’s business landscape has witnessed a notable contraction, with the number of companies registered at Companies House declining in the final quarter of 2024. For the first time since 2012, the total figures for businesses on the official register fell, marking a challenging period for entrepreneurs and small business owners.

According to data, the register listed 5,408,707 businesses by the end of December 2024. This represents a drop of 19,879 companies compared to the previous quarter. The “effective register,” which excludes businesses in the process of dissolution or liquidation, revealed an even steeper fall of 59,495 companies. Over 203,584 businesses officially closed during the last three months of 2024, a sharp 24.6 per cent rise compared to the same period the previous year.

The figures also highlighted a slowdown in new business registrations, with only 181,261 new companies recorded in the same period, a 15.5 per cent decline compared to 2023. Experts link this contraction to a combination of inflationary pressures and increased costs stemming from government policies.

Rachel Reeves, the Chancellor, introduced significant measures in the autumn budget that have added to the burdens faced by business owners. Key policy changes included raising employers’ national insurance contributions from 13.8 per cent to 15 per cent and lowering the salary thresholds for such contributions. Additionally, from April 2025, minimum wage increases are expected to add over £2,000 in costs annually for companies employing staff on lower wages.

Industry analysts suggest these moves have made business ownership less attractive for many, with several choosing to avoid incorporation altogether. For some, the administrative demands of running a business, including payroll obligations and statutory filings, have become prohibitive, prompting them to opt for sole proprietorship. Chartered tax adviser Michael Steed has emphasised that operating as a sole trader requires fewer compliance measures compared to incorporated entities, making it a preferred option for some entrepreneurs.

Companies House has also begun enforcing stricter regulations to ensure compliance. The agency is now utilising its new powers to dissolve companies that fail to provide appropriate registered office addresses. This, too, has contributed to the shrinking register of active businesses.

The decline in company numbers underscores the challenges faced by businesses navigating rising operational costs and stricter government policies. It highlights the need for a balanced approach that supports both taxation objectives and business growth.