UK Business: Activity, size and location: 2014

• The number of VAT and/or PAYE businesses is estimated to have risen by 96,000 (4.4%) between March 2013 and March 2014. This is in line with the performance of the UK economy

• Companies and public corporations’ numbers have continued to rise and represent 66.1% of total businesses. The number of sole proprietors and partnerships has continued to decline and now represents 29.9% of total businesses

• The largest industry group is professional, scientific and technical, with 17.5% of all registered businesses in the UK

• London has the largest number of VAT and/or PAYE based businesses, with 17.7% of the UK total and has also experienced the largest growth of 7.7% between 2013 and 2014

There were 2.26 million enterprises registered for VAT and/or PAYE in March 2014, compared with 2.17 million in March 2013, a rise of around 96,000 (4.4%).

The rise and fall in the number of VAT and/or PAYE businesses (Figure 1) is broadly consistent with the performance of the UK economy over the past five years. The recent economic downturn was the deepest on record, as the UK experienced a peak-to-trough fall in real GDP of -6.0% between Q1 2008 and Q2 2009.

As economic conditions worsened, the number of VAT and/or PAYE registered enterprises started to fall, on a trend that continued until 2011: two years after the trough in GDP. This fall is also consistent with the sharp reduction in the employment rate, which reached a low of 70.1% in September 2011.

The subsequent pick up in business creation may also have supported the strengthening of the labour market since the end of 2011. In particular, stronger business creation may have followed a revival in confidence in labour market outcomes over this period.

The October 2014 Economic Review identified a rise in the number of job to job flows (the rate at which individuals move from one job to another) over this period, largely as a consequence of increasing job mobility and a larger number of voluntary moves, both between industries and occupational groups. These trends may indicate increasing employer and employee confidence, which may in turn have been reflected in the growing number of registered businesses.

Figure 1: Number of VAT and/or PAYE based enterprises, 2009 to 2014

Source: Office for National Statistics

Notes:

1. Approximately 31,000 of the change betwen 2011 and 2012 was caused by improvements to HMRC computer systems leading to previously excluded businesses being added to the IDBR (See background note 7)

2. Between 2013 and 2014 HMRC introduced a Real Time Information system for PAYE (see background note 8)

The recovery in the number of registered businesses may also have been driven by a marked rise in the number of self-employed workers. Over the past 40 years, self-employment has generally risen at a gradual rate. However, in recent years it increased sharply, from 13.6% of all employment in May−July 2011, to 14.2% in August−October 2011 and rose to 15.0% of all employment in April−June 2014. This increase in self employment tracks the changes in the number of VAT and/or PAYE businesses over this period.

The high number and growth rate of VAT and/or PAYE businesses of 7.7% in London, compared to the rest of the UK, is also reflected in regional labour market data. The unemployment rate in London for 16−64 year olds fell by 2.3 percentage points in the year to June−August 2014, from 9.0% to 6.7%: the largest fall in unemployment in any of the UK regions.

Between March 2013 and March 2014, there was a 2.2% reduction in the number of sole proprietors and partnerships, while corporate businesses increased by 7.9%.

Figure 2 shows the gradual increase in incorporation and the decline in sole proprietors and partnerships over the last five years, which reflects a range of benefits that can be achieved by using this legal form.

Over this period the new PAYE Real Time Information (RTI) system was rolled out across businesses. Please see background note 8 for more details.

• Corporate businesses (companies and public corporations) represented 66.1% of total enterprises, up 2.1 percentage points from 64% in 2013. 42.9% of the corporate business figure is made up of single employee limited companies, which have increased by 42,000 between 2013 and 2014

• Sole proprietors represented 19.6% of total enterprises, down 1.1 percentage points from 20.7% in 2013

• Partnerships represented 10.3% of total enterprises, down 0.9 percentage points from 11.2% in 2013

• General government and non-profit making bodies represented 3.9% of total enterprises, compared with 4% in 2013

In 2014, the professional, scientific and technical sector accounted for the largest number of businesses, with 17.5% of all registered enterprises in the UK. Wholesale, retail and repair of motor vehicles was the second largest sector, with 16% of all enterprises registered, although it experienced a decrease in percentage share of UK enterprises, from 16.5% in 2013. The third largest sector was construction, with 11.8% in 2014.

The professional, scientific and technical sector had the largest growth between 2013 and 2014, an increase of 30,000 businesses. This was followed by the information and communication sector which increased by 14,000 businesses in 2014 and business administration and support services which also increased by 14,000.

London accounted for the largest number of businesses in March 2014, with 17.7% of the UK total. The region with the next largest share of businesses was the South East, at 15.6%.

Between 2013 and 2014, all regions except Northern Ireland saw an increase in the number of businesses, with London experiencing the greatest increase of nearly 29,000 businesses. London grew by 7.7% between 2013 and 2014 and this accounts for 29.7% of the growth in the UK.

Local units are sites that belong to an enterprise. In March 2014, there were 2.72 million local units belonging to VAT and/or PAYE based enterprises, compared with 2.63 million in March 2013, a rise of nearly 96,000 (3.6%). Out of the 2.26 million VAT and/or PAYE enterprises, only 58,000 (2.6%) operate from more than one site. These operated a total of 516,000 local units.