The Centre for Entrepreneurs (CFE) has publicised details of its analysis of the latest Companies House Data, which looks at why new business numbers are down.

Disguised Employment Rules are Behind DropFall in New Business Formation is Due to Tax Clampdowns Claims CFE Alison

The latest Companies House data shows that 589,008 new businesses launched in 2017, down from 657,790 in 2016.

CFE’s analysis suggests this drop in new business formation is most due to the government’s clampdown on disguised employment.

CFE found that 30,000 fewer companies were registered by known contractor accounting providers in 2017 compared to 2016, and highlighted Wiltshire as a prime example of how the government’s April 2017 ruling has affected business formation.

In 2016, there were 10,164 new businesses registered in Wiltshire, with 7,475 (73%) registered to an accounting firm that provides payroll solutions to contractors. In 2017, the county saw only 3,409 businesses registrations, of which 458 were registered to that address. The CFE noticed similar drops in other areas ‘where contractor accounting firms have significantly outnumbered genuine entrepreneurial business formations in recent years.’

Matt Smith, director of CFE, said: “This is a welcome re-adjustment to business formation figures, which have become increasingly distorted over the past few years by the rise in contractor accounting firms.

“The company formation statistics now give far more accurate insight into the state of entrepreneurship nationwide.”

Rates and Regulatory Burdens

However, the fall in business formation is seen outside these contractor ‘hubs’.

The CFE’s analysis points out that the disguised employment clampdown will have affected contractor accounting firms generally, including those registered to home homes or offices. The other reason they identify for the drop is the ‘cumulative effect of business rate rises and other regulatory burdens,’ coupled with the government’s ‘muted encouragement’ for entrepreneurs.

Responding to the study, Shadow Business Secretary Rebecca Long-Bailey told The Times newspaper, “It’s been clear for some time that the government is failing to properly support entrepreneurs.

“Mishandling of business rates is just one of a number of examples.”

The analysis also found a marked increase in the number of business registering via company formation agents, business centres or virtual offices. 60,000 of the estimated 515,000 new businesses were registered in this way in 2017, up 20% from 2016, although the majority continue to be registered in homes, offices and local accountancy firms.

Mr Smith said: “With business registrations increasing for nearly a decade it is not surprising to see the record streak come to an end.”

“While the tax clampdown is responsible for most of the drop, there is evidence that formations have fallen more than expected.”

He added: “To boost startup figures, the government must return to championing entrepreneurship and supporting entrepreneurs, as it did so well under David Cameron.”