The increase in employee taxes has led to a record-breaking jump in UK businesses that are in financial trouble.
Experts in insolvency Begbies Traynor have found that there has been a 50% rise in the number of companies experiencing “critical financial difficulties” (meaning, they still owe a county court judgement in excess of PS5,000 or are facing a winding-up petition) from September to December 2024.
The number of firms in this category has increased to 46.583, which is a record high since Begbies Traynor began collecting data in 2004. The previous three-month period saw a total of 31,201.
The firm claimed that HMRC’s more aggressive approach to recovering unpaid taxes, along with fears of higher business costs, such as increased wages, and the prospect of increasing employer national insurance contributions as well as the impact of Employment Rights Bill, had contributed to the sharp increase.
It found that the worst affected sectors are hospitality, leisure and retail, as well as construction.
The increase in National Insurance Contributions and the National Minimum Wage, announced at last Budget, may be the final straw for many businesses who are already struggling with low consumer confidence, higher borrowing costs and weaker consumer trust. Ric Traynor is the executive chairman.
It is evident that many UK businesses in distress are finding it difficult to navigate the challenges as we begin 2025.
Julie Palmer, partner of the firm, stated that the increase in the number of businesses facing insolvency is “unprecedented”.
“With so many businesses already operating at thin margins, the current situation is likely to push some of them over the edge.
The situation is indeed precarious, especially at a moment when consumer confidence has been so volatile, and the borrowing costs are likely to remain structurally higher in the near future.
Palmer warned that tax increases and the increase in national minimum wage announced in October’s budget would further strain businesses who “are already struggling to treadwater”.
She added, “So in the absence a reduction in tax burdens and a strong recovery in the economy, I expect that the number of insolvencies will continue to increase in 2025, as firms struggle to deal with the perfect storm of increasing costs, financial instabilities and fluctuating market circumstances.”
Business bodies and large employers have warned that the decision of chancellor Rachel Reeves to increase employers’ National Insurance burden to 15% as well as to lower the threshold where it is paid could result in job losses or hinder recruitment.
BT, as an example, has said that it will be facing additional costs in the region of PS100,000,000 due to changes in NI and minimum wages.
An analysis conducted by the Centre for Policy Studies earlier this month showed that in 2025, the cost of hiring low-wage workers will reach a new high.
