Bad policy decisions drive perverse behaviour and here is a stark example: the number of UK entrepreneurs choosing to shut down viable businesses has hit the highest level since the pandemic. And rising taxes are being blamed.
Official Statistics
Official statistics for the period January to March 2025 show that there were nearly five million businesses registered, an increase of 0.3% since December 2024.
However, there were just over 190 thousand dissolutions in the UK between January and March 2025, an increase of nearly 19% on the same period last year.
The number of companies seeking voluntary closure reached 12,602 in 2024/25 – the second highest on record and the highest since 2020/21.
Key tax relief
It seems owners have been taking advantage of a tax break called business asset disposal relief.
This allows owners to take money out of a company at a low rate of tax before closing the business down.
Cash withdrawn from a company this way is classed as capital distribution and taxed at a lower rate than income, which could be taxed at a rate up to 45%.
In last year’s budget, the Chancellor announced a rise in business asset disposal relief from 10% to 14% and to 18% next year.
Cashing in their chips
Headwinds – including energy costs, NI hikes and tariffs – are making doing business tougher. Business owners are looking at their options – one of which is to cease trading.
It is a long time since UK politicians prioritised small business growth, often seeing them as an easy target for tax rises. The UK has never achieved a mittlestand – a cohort of strong small to medium-sized businesses that are around for generations and are prioritised for government support against foreign competition.
Time for business secretary Jonathan Reynolds and chancellor Rachel Reeves to wake up.
