Limited company formations rise following two year slump

The number of new companies has started to rise again following two years of steep falls caused by the banking crisis, according to a Top 25 accountancy firm.

According to Wilkins Kennedy, the number of new companies registered with Companies House surged by 10% to 362,300 in 2009/10, up from 330,100 in 2008/9.

In the previous two years, which were scarred by the worst recession seen for a generation, company incorporations saw record falls of 17% to 372,000 in 2007/8, followed by a drop of 11% to 330,000 in 2008/9.

Wilkins Kennedy says that the bounce-back in new company formation demonstrates the UK enterprise economy’s resilience. Wilkins Kennedy believes that the various Government measures announced in the emergency budget could give a further boost to the creation of new companies.

Roger Williams, Partner, commented: “These figures show how quickly the small business sector has been able to get back on its feet despite being hit particularly hard by the recession. This economic crisis has caused a slump in new start-ups that was more than twice as severe as in the 1990/91 downturn.”

“Hundreds of thousands of people have lost their jobs since the banking crisis started but what we are now seeing is that many of those have dusted themselves down and are starting up their own business.”

“Starting a new company is never easy and most people who have spent their working lives as employees put a lot on the line by going it alone – for example they may need to use their house as security for loans.”

The accountancy firm says that some measures in the emergency budget should encourage entrepreneurship further:

Emergency budget positives for entrepreneurs

  • The reduction of corporate tax on small limited companies from 21% to 20% in April 2011 will make it even more advantageous for entrepreneurs to operate through their own companies, especially as the emergency budget left income tax and insurance contributions (NIC) unchanged. Income tax can cost up to 50% for higher rate taxpayers and national insurance contributions (NIC), now at 11%, will increase to 12% next year.
  • Instead of paying themselves a salary, which is subject to Income Tax and NIC, business owners can withdraw dividends out of their company’s profits (net of corporate tax), which is free of tax as long as the amount doesn’t exceed the basic rate Income Tax limit of £43,875.
  • The threshold for entrepreneurs’ relief on CGT rising from £2 million to £5 million (with immediate effect) will allow business owners to pay only 10% of CGT on lifetime gains of up to that amount.
  • A £200 million top-up to the current £500 million Enterprise Finance Guarantee (EFG) scheme up until March 2011.
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