The economic landscape for UK businesses in 2025 continues to present significant challenges, with insolvency figures revealing concerning trends across various sectors. Recent data from The Insolvency Service highlights the ongoing struggles many companies face in maintaining financial stability amidst rising costs, regulatory changes, and global economic pressures.
The latest statistics paint a sobering picture of the commercial environment, with monthly insolvency numbers approaching levels not seen since the aftermath of the 2008 financial crisis. This article examines the current state of business insolvencies across the United Kingdom, exploring the underlying causes, sectoral impacts, and potential strategies for businesses navigating these turbulent times.
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Current Insolvency Landscape
May 2025 marked a significant uptick in business failures across the UK, with England and Wales recording 2,238 company insolvencies. This represents a 15% increase compared to the same month in 2024 and a 7.9% rise from April 2025. These figures indicate the highest monthly total since June 2024, continuing a concerning trend that began in 2023.
The overall pattern of business insolvency rates in 2025 shows that the first five months have slightly exceeded the levels seen in 2024, approaching the 30-year high recorded in 2023. This persistent elevation suggests that the economic pressures driving companies into insolvency remain firmly entrenched despite various governmental interventions and policy adjustments.
Creditors Voluntary Liquidations Increasing
When examining the composition of these insolvencies, Creditors’ Voluntary Liquidations (CVLs) continue to dominate, accounting for 77% of all cases in May 2025. The 1,734 CVLs recorded represent an 11% monthly increase and a 13% annual rise, reaching the highest monthly total in a 12-month period. This trend indicates that many business owners are proactively choosing to wind up operations rather than continue struggling against mounting financial pressures.
Compulsory Liquidations Up
Compulsory liquidations, though slightly reduced from April’s 10-year high, still numbered 354 in May 2025-32% higher than the same month in 2024 and significantly above the monthly average for 2024. This reflects increased creditor activity, particularly from HMRC, which has intensified efforts to recover outstanding tax liabilities.
Regional Variations in Insolvency Rates
The business insolvency landscape varies considerably across the UK’s nations, with Scotland and Northern Ireland experiencing their highest monthly figures in half a decade.
In Scotland, May 2025 saw 133 company insolvencies, representing a 13% annual increase and 32 more cases than the previous month. This marks the fourth consecutive month with Scottish insolvencies exceeding 100. The composition included 56 CVLs, 72 compulsory liquidations, and five administrations. Notably, compulsory liquidations have overtaken CVLs for the third consecutive month, reversing a trend that had persisted since April 2020.
Northern Ireland recorded 53 company insolvencies in May 2025, showing a 20% annual increase and 23 more cases than April. This represents the highest monthly total in the province for over five years. The breakdown included 33 compulsory liquidations, 13 CVLs, six administrations, and one Company Voluntary Arrangement (CVA).
When comparing insolvency rates per 10,000 companies on the effective register, England and Wales recorded 53.0 (equivalent to one in 189 companies), Scotland showed 51.8, and Northern Ireland registered 36.4. These rolling rates provide a more comparable measure over time than absolute numbers, which can fluctuate due to short-term factors.
Sectoral Analysis of Business Failures
Construction continues to bear the brunt of insolvencies in 2025, maintaining its position as the UK’s most vulnerable sector. In recent months, construction firms accounted for approximately 17% of all business failures, with 334 companies entering insolvency in a single month.
The wholesale and retail trade sector follows closely behind, representing 16% of all insolvencies. This sector has struggled with changing consumer behaviours, online competition, and rising operational costs, leading to 318 business failures in a recent month.
Accommodation and food service activities remain particularly vulnerable, accounting for 14% of all insolvencies. With 274 failures in a recent month, this sector continues to face challenges from reduced consumer spending, staffing difficulties, and increased operational expenses.
Other significantly affected sectors include administrative and support service activities (10%), manufacturing (8%), and professional, scientific and technical activities (8%). Together, these six sectors account for nearly three-quarters of all business insolvencies in the UK.
Key Drivers of Business Insolvency in 2025
Several interconnected factors continue to drive the elevated business insolvency rates in 2025:
- Persistent inflation remains above the Bank of England’s 2% target, keeping pressure on business costs for materials, energy, and operations.
- Employment cost increases implemented in April 2025, including higher National Insurance contributions and National Minimum Wage rates, have squeezed margins for labour-intensive businesses.
- International trade uncertainties, particularly around US tariffs, have disrupted supply chains and complicated medium to long-term business planning.
- Tightened credit conditions have restricted access to financing, with banks raising lending thresholds and charging higher interest rates despite some moderation in the base rate.
- HMRC enforcement activity has intensified, with more resources allocated to recovering outstanding corporation tax, VAT, PAYE, and National Insurance arrears.
- Late payment issues persist across supply chains, creating cash flow challenges that can quickly escalate into insolvency, particularly for smaller businesses with limited reserves.
- Consumer spending caution continues to affect retail and hospitality sectors, with households prioritising essentials over discretionary purchases.
Comparing Current Trends with Historical Data
While the absolute numbers of business insolvencies in 2025 approach 30-year highs, the insolvency rate per 10,000 companies (52.5 in July 2025) remains significantly below the peak of 113.1 recorded during the 2008-09 recession. This difference reflects the substantial growth in the total number of registered companies over the past decade and a half.
The composition of insolvencies has also evolved, with CVLs now dominating the landscape in contrast to earlier periods when compulsory liquidations were more prevalent. This shift indicates a greater awareness among directors about addressing financial difficulties proactively rather than waiting for creditor action.
Administration procedures, designed to rescue viable businesses, have increased by 28% from April to May 2025 and stand 12% higher than May 2024. This suggests that despite the challenging environment, restructuring efforts are being pursued where possible.
Outlook and Recommendations for Businesses
The remainder of 2025 is likely to see continued pressure on businesses, with insolvency rates expected to remain elevated. Companies facing financial difficulties should consider several strategies:
- Seek professional advice at the earliest signs of financial distress rather than waiting until options become severely limited
- Implement robust cash flow management systems and maintain regular forecasting
- Explore restructuring options, including the relatively new moratorium procedure introduced in 2020
- Consider diversification of revenue streams to reduce dependency on vulnerable markets
- Negotiate proactively with creditors, particularly HMRC, which has shown some willingness to arrange payment plans
- Review staffing structures and operational costs without compromising core business functions
For policymakers, addressing the underlying structural issues driving insolvencies-particularly late payments, access to affordable finance, and the cumulative burden of regulatory costs-remains essential to fostering a more sustainable business environment.
The Business Climate Is Very Tough
As Tom Russell, Vice President of R3, the UK’s insolvency and restructuring trade body, noted: “The climate remains very tough for businesses… reflected in the number of directors who are actively taking steps to wind up their companies and the number of creditors who are turning to the courts to pursue the debts they’re owed.”
With economic headwinds likely to persist through 2025, both preventative measures and responsive support mechanisms will be crucial in mitigating the impact of business failures on the broader economy, employment, and supply chains.