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Insolvencies soar to 16-year high as tax hike drives bosses to close up shop

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February 18, 2025
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Insolvencies soar to 16-year high as tax hike drives bosses to close up shop
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The number of company insolvencies rose sharply at the start of the year, reaching a level not seen since the financial crisis, according to the latest figures from the Insolvency Service.

More than 1,900 businesses went under in January—10.7 per cent more than a year earlier—meaning nearly 500 firms a week were forced to fold.

Aside from 2009, when the economy reeled from the global credit crunch, last month’s total was the highest recorded for any January since official data collection began in 2000.

Tim Cooper, president of insolvency and restructuring trade body R3, highlighted that many of these cases were voluntary liquidations, suggesting owners were choosing to wind up solvent businesses. “Years of challenging trading conditions are taking a toll,” he said, “and with an increase in the national minimum wage and employers’ National Insurance contributions on the horizon, it appears some directors are stepping away before costs become unmanageable.”

From April, firms must grapple with Chancellor Rachel Reeves’s Budget measures, which include a £25 billion tax raid on employers through higher National Insurance. That same month, they also face a 6.7 per cent rise in the National Living Wage—exceeding most private-sector expectations.

Some analysts say the spectre of additional legislation—such as Deputy Prime Minister Angela Rayner’s Employment Rights Bill, set to cost businesses an estimated £4.5 billion annually—may be accelerating decisions to close up shop. Many of these burdens come on top of persistently high energy bills, fallout from Russia’s invasion of Ukraine and interest rates which, although trimmed recently, remain far higher than their pre-pandemic levels.

“Companies have faced climbing expenses for a prolonged period,” Mr Cooper added, “and consumer confidence has been dented. Meanwhile, creditors have become less tolerant in chasing outstanding debts, including HMRC, which has reverted to a more stringent stance.”

The figures show a fresh blow for businesses that had already endured a subdued Christmas trading season. Retailers and hospitality venues have struggled with low consumer spending, while VAT and PAYE arrears are being pursued more aggressively. Lawyer Gavin Kramer from Collyer Bristow also warned: “Firms continue to struggle, and there are few clear signs of economic growth.”

Before January’s jump, overall insolvencies had been in decline since last June—but these numbers confirm that thousands of directors have now decided the best option is to close before spring’s raft of cost increases bite.

A Treasury spokesman declined to comment on the data.

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Insolvencies soar to 16-year high as tax hike drives bosses to close up shop

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