Press Releases

16 February 2009

Biggest drop in new companies being created since 1973/74 oil crisis

• Incorporations fall 17.2% in 2007/08
• Tax on small companies rising from 19% in 2007 to 22% in 2010

The number of new companies being created plummeted 17.2% last year, the steepest annual drop since the oil crisis of 1973/74 when new company creations fell 36.8%, according to calculations by Wilkins Kennedy, the Top 25 accountants.

According to figures from Companies House, 372,400 new companies were created in the UK in 2008, compared to 449,700 in 2007.

Wilkins Kennedy says that these figures are a dire warning that the Government needs to act quickly to cut red tape and offer tax breaks to encourage new start-ups as the downturn deepens.

Wilkins Kennedy says that the deteriorating economic conditions coupled with Government policy of reducing the tax benefits of running a company are acting as a brake on company creation in the UK.

The Government increased the small companies’ rate of tax from 19% to 20% from 1 April 2007, and from 20% to 21% from April 2008. The planned increase from 21% to 22%, which was scheduled from April 2009, has been deferred for 12 months.

Roger Williams, Partner, Wilkins Kennedy, comments: “These figures show just how badly the small business sector is being hit by the downturn. The slump in new companies being created last year is more than twice as severe as the drop during the 1990/91 downturn when there was an 8.6% decline in new start-ups.”

“It gives you some indication just how unfavourable the climate now is for starting a new business if you have to go as far back as the oil crisis of the 1970s to find a steeper decline in new company formations.”

“Small companies are the engine of growth that will help drive the UK economy out of recession, but they can’t create jobs if they never get started. The Government deferred an increase in corporation tax for small companies in the pre-Budget report but it needs to go much further and actually cut tax rates for small companies.”

He adds: “The lack of finance available to the small business sector must also be a factor behind this alarming drop in incorporations.”

Roger Williams says: “Many people who are made redundant during the recession will be thinking of starting their own company, but increases in the corporation tax rate for small companies and plans to apply National Insurance to dividend income may make them think twice about whether it’s worth taking the risk.”

Wilkins Kennedy points out that since 1997 small companies have had to contend with an avalanche of new employment legislation, such as the minimum age, working time regulations and rights in relation to work-life balance.

ENDS

Press enquiries:

Roger Williams
Partner
Wilkins Kennedy
Tel: 01784 435561
Mob: 0778 067 1563

Paul Arvanitopoulos or Nick Mattison
Mattison Public Relations
Tel: 020 7645 3636