Increased tax scrutiny leads to an uptick in forced business dissolutions
In recent months, the UK has seen a rise in insolvencies, with more companies winding up in July 2025 than in June. The sectors most affected by this trend remain construction, wholesale and retail trade, and manufacturing, according to the latest data.
One of the key factors leading to this increase is hikes to employment taxes, which have put a strain on businesses, particularly those on the brink of collapse. However, the current impact of HMRC's crackdown on unpaid taxes on company directors and insolvencies in these sectors is not directly detailed in the latest search results.
HMRC's efforts to improve tax compliance are evident in their intensified scrutiny on taxpayers’ claims, ensuring that expenses are wholly business-related and disallowing personal expenses wrongly claimed as business costs. This enforcement includes opening more enquiries to check deductions claimed by sole traders, partners, and landlords to recover unpaid taxes.
From April 2027, banks must collect National Insurance numbers for savings account holders to better match third-party data and ensure correct tax collection on savings interest. This could reduce tax avoidance and underreporting, indirectly pressuring company directors who rely on savings-related income or who may have personal finances tied to business activities.
Despite these measures, the total insolvency figures are likely to remain stable due to the Bank of England's quick interest rate cut, according to Daniel Staunton, a senior associate in the insolvency team at Kingsley Napley. However, the Association of Business Recovery Professionals (R3) stated that HMRC's more direct approach has led to the collapse of more firms.
The number of administrations increased slightly compared to the previous year, and the increase in compulsory liquidations is driving insolvencies across the UK. The number of compulsory liquidations spiked by 11% in the year to July 2025, with 339 compulsory liquidations in July 2025, which is 26% higher than the monthly average in 2024.
This has led to a decrease in around 2,000 jobs across the manufacturing industry and a net loss of 13,520 manufacturing businesses over the past four years. Manufacturing made up 8% of insolvencies, with the sectors most affected being construction, wholesale and retail trade, and manufacturing.
Nick O'Reilly, restructuring director at the advisory firm MHA, suggested that business owners may be overestimating the severity of the situation due to increased costs, global trade tensions, and uncertainty ahead of the Autumn Budget. However, directors are feeling the impact of HMRC's firmer enforcement, which is adding pressure on businesses.
R3 president Tom Russell said HMRC is taking a more assertive stance towards enforcement, with a greater appetite to recover unpaid taxes through the courts. As such, it is essential for businesses to ensure their tax affairs are in order to avoid potential insolvency risks.
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