Concerns around an increase in employer taxes have contributed to a record jump in the number of UK businesses in financial distress.

Insolvency experts Begbies Traynor found there was a 50% increase in companies in “critical financial distress” (meaning they have an outstanding county court judgment of more than £5,000 or face a winding up petition) between September and December 2024.

The number of companies in this category increased to 46,583, a record since Begbies Traynor started collecting data in 2004. In the previous three months, the number was 31,201.

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The firm said that a more aggressive stance by HMRC in terms of recovering overdue taxes had played a part in the sharp rise, as did fears that business costs such as higher wages, the prospect of increased employer national insurance contributions, and the impact of the Employment Rights Bill were making operating conditions difficult for businesses.

The worst hit sectors were hospitality, leisure, retail and construction, it found.

“For many businesses which were already dealing with weak consumer confidence and higher borrowing costs, the increase in National Insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw,” said Ric Traynor, executive chairman.

“It is clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025.”

Julie Palmer, a partner at the firm, said the growth in businesses facing insolvency was “unprecedented”.

“With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.

“Indeed, at a time when consumer confidence is so volatile and borrowing costs look likely to be structurally higher for the foreseeable future, the situation feels very precarious.”

Palmer said tax rises and the increased national minimum wage, announced in last October’s budget, would put further strain on businesses that “are struggling to tread water already”.

“So, in the absence of a reduced tax burden and a strong economic recovery, I expect the number of insolvencies to continue to rise in 2025 as firms struggle to cope with a perfect storm of rising costs, financial instability and fluctuating market conditions,” she added.

There have been multiple warnings from business bodies and major employers that chancellor Rachel Reeves’ decision to increase employers’ national insurance burden to 15%, as well as lower the threshold at which it is paid, could mean job losses or stifle recruitment.

BT, for example, said it will face additional costs of around £100 million because of NI and minimum wage changes.

Earlier this month, analysis by the Centre for Policy Studies showed that the cost of employing low-wage staff will hit a record high in 2025.

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