In the 2024–25 tax year, the UK experienced a marked increase in voluntary business liquidations, with levels not seen since the height of the COVID-19 pandemic. This upward trend has raised concerns among economists, business advisers, and policymakers, as more entrepreneurs—particularly sole traders and owners of small private limited companies—choose to shut down operations and exit the market.
While the reasons behind any individual decision to liquidate are varied, the sharp rise across the board points to deeper systemic pressures. Among the key drivers are recent changes to the tax treatment of business exits, mounting operational costs, and a persistent atmosphere of economic uncertainty that continues to test the resilience of small and medium-sized enterprises (SMEs).
This article explores what’s behind the current liquidation wave and, more importantly, what it means for business owners still navigating today’s economic challenges.
Understanding the Surge in Voluntary Liquidations
Voluntary liquidations typically occur when business owners choose to close their companies in an orderly fashion—often for financial planning reasons, retirement, or a change in life circumstances. However, when these liquidations spike across the economy, it usually reflects a broader set of pressures.
One major contributing factor in the current trend is the tightening of Business Asset Disposal Relief (previously Entrepreneurs’ Relief). This relief once allowed business owners to pay a reduced 10% capital gains tax rate on qualifying disposals of business assets, up to a lifetime limit of £10 million. Successive reforms in recent years have reduced the lifetime limit to just £1 million, making the tax advantages of liquidating and extracting profits far less generous. Many entrepreneurs who were holding off on exit plans have accelerated their timelines, hoping to lock in gains before further changes or uncertainty around capital tax reforms take effect.
In parallel, businesses are grappling with ongoing macroeconomic headwinds. Energy prices remain high, inflation continues to erode purchasing power, and interest rates—while recently stabilising—are still well above the historically low levels that underpinned much of the UK’s post-2010 entrepreneurial growth. At the same time, late payments from clients and increased wage demands have squeezed cash flows, making it harder for SMEs to remain agile and invest in future growth.
The combination of reduced tax incentives, rising costs, and stagnant confidence has tipped many otherwise viable businesses into a controlled exit strategy through Members’ Voluntary Liquidation (MVL).
What Does This Mean for Me? – The SME Perspective
If you’re running a small or medium-sized enterprise in today’s environment, the growing number of business liquidations is more than just a statistical trend—it’s a signal. Whether you’re considering an exit yourself or planning for long-term resilience, this environment requires careful consideration and forward planning.
1. Re-evaluate Your Exit Plan
If you’ve built up retained profits and were planning to eventually close or sell your business, you may be facing a narrowing window to extract value under favourable tax terms. With capital gains tax reform always a possibility in future budgets, there’s an argument for bringing forward any planned exit to take advantage of current rates. However, this must be balanced with long-term personal and business goals—seek specialist advice to make a fully informed decision.
2. Strengthen Financial Buffers
For those staying the course, the trend underscores the importance of resilience. Rising liquidations may also mean less competition in your market, but that will only be a benefit if your business is structured to survive. Focus on strengthening your balance sheet, improving cash flow management, and ensuring your cost base is flexible.
3. Watch for Opportunities
Periods of high liquidation can present growth opportunities. Businesses that remain in the market may benefit from increased demand or talent availability as others exit. Additionally, acquiring assets from wound-down companies—such as customer lists, stock, or IP—can offer cost-effective expansion routes.
4. Know the Value of Your Business
Even if you’re not planning to exit, understanding the realisable value of your business is key. The uptick in liquidations suggests a cooling appetite for holding businesses indefinitely. Whether you’re preparing for a sale, merger, or generational transfer, having an accurate valuation will give you leverage and clarity.
5. Monitor Government Policy Closely
The interplay between tax policy and business behaviour is clear. Future changes—whether to capital gains tax, Business Asset Disposal Relief, or corporation tax rates—could further reshape exit strategies and business planning. Make it a priority to keep informed and adapt quickly to fiscal policy changes.
Conclusion
The rise in business liquidations in 2024–25 marks a significant moment for UK entrepreneurship. It reflects not just the pressures facing individual businesses, but a broader recalibration in how business owners think about growth, risk, and succession.
For some, exiting now makes financial and strategic sense. For others, staying in the game will require sharper focus, smarter planning, and greater agility. Whichever path you’re on, the current environment demands a proactive mindset and a clear view of where you want your business to be—not just next quarter, but in the years to come.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
