UK Business: Activity, size and location: 2015

• The number of VAT and/or PAYE businesses in the UK is estimated to have risen by 89,000 (3.8%) between March 2014 and March 2015

• Companies and public corporations’ numbers have continued to rise and represent 66.8% of total businesses

• The number of sole proprietors and partnerships has continued to decline and now represents 29.5% of total businesses

• The largest industry group this year remains as professional, scientific and technical, with 17.8% of all registered businesses in the UK compared with 17.3% in 2014

• London has the largest number of VAT and/or PAYE based businesses, with 18.2% of the UK total and has also experienced the largest growth of 6.9% between 2014 and 2015

There were 2.45 million enterprises registered for VAT and/or PAYE in the UK in March 2015 compared with 2.36 million in March 2014, a rise of around 89,000 (3.8%).

In 2015, we have extended the coverage of businesses in this release to include a population of solely PAYE based businesses that were previously excluded because of a risk of duplication. These businesses have also been included in the previous years' estimates shown in this statistical bulletin in order to provide a comparable time series. Please see background note 2 for more details.

The growth in the number of VAT and/or PAYE businesses (Figure 1) is broadly consistent with the performance of the UK economy in recent 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 Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009. As economic conditions worsened, the number of VAT and/or PAYE registered enterprises started to fall on a trend that continued until 2011: 2 years after the trough in GDP. This fall is also consistent with the reduction in the employment rate, which reached a low of 70.1% in the 3 months to September 2011.

Figure 1: Number of VAT and/or PAYE based enterprises

UK, 2010 to 2015

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 8)
2. Between 2013 and 2014 HM Revenue & Customs (HMRC) introduced a Real Time Information system for PAYE (see background note 9)

The subsequent pick up in business creation has tracked the growth in the employment rate, levelling off in 2013 before growing strongly in the most recent 2 years. The September 2015 Economic Review highlighted the strength of the recovery in the employment rate following the economic downturn. As the labour market began to recover in 2012, job-to-job moves – an indicator of labour market confidence – rose particularly sharply. During an economic upswing, the improvement in conditions may give workers the confidence they need to move between employers: this rise in confidence may also have an impact on workers’ willingness to establish new businesses.

The strong increase in the number of registered businesses has also been reflected in the marked rise in the number of self-employed workers since 2011. Our analysis of self-employed workers in the UK highlighted how the rise in total employment following the downturn was predominantly from the self-employed. These trends suggest a revival of confidence in the labour market, which may in turn have been driving the growing number of registered businesses.

Broader economic indicators suggest that the economy has grown strongly over recent periods. Output continued to grow in 2015 as low inflation and a pick-up in nominal pay growth have continued to support consumer demand. Potential new businesses may also have been encouraged as interest rates were cut to record lows after the downturn. This impact may have been initially offset by credit rationing as the financial sector adjusted to the global shock. As the availability of credit improved in 2012, corporate borrowing also recovered which may have helped support the growth in registered businesses. More recently, new business creation may have been boosted as falls in the oil price put downwards pressure on firms' operating costs.

Between March 2014 and March 2015, there was an increase of 8.0% in corporate businesses, while there was a reduction of 4.2% in the number of sole proprietors and partnerships.

Corporate businesses (companies and public corporations) represented 66.8% of total enterprises, up 2.6 percentage points from 64.2% in 2014; of the corporate business figure, 44.3% is made up of single employee limited companies, which have increased by 73,000 between 2014 and 2015.

Sole proprietors represented 20% of total enterprises, down 1.7 percentage points from 21.7% in 2014. Partnerships represented 9.5% of total enterprises, down 0.8 percentage points from 10.3% in 2014.

General government and non-profit making bodies represented 3.7% of total enterprises, compared with 3.8% in 2014.

In 2015, the professional, scientific and technical sector accounted for the largest number of businesses, with 17.8% of all registered enterprises in the UK. Wholesale, retail and repair of motor vehicles was the second largest sector, with 15% of all enterprises registered, although it experienced a decrease in percentage share of UK enterprises, from 15.7% in 2014. The third largest sector was construction, with 11.6% in 2015.

The professional, scientific and technical sector had the largest growth between 2014 and 2015, an increase of 26,000 businesses. This was followed by business administration and support services which also increased by 14,000.

London accounted for the largest number of businesses in March 2015, with 18.2% of the UK total. The region with the next largest share of businesses was the South East, at 15.4%.

Between 2014 and 2015, all regions saw an increase in the number of businesses, with London experiencing the greatest increase of nearly 29,000 businesses representing a growth of 6.9% between 2014 and 2015. The growth of businesses in London accounts for 32.1% of total growth in the UK.

Local units are sites that belong to an enterprise. In March 2015, there were 2.91 million local units belonging to VAT and/or PAYE based enterprises, compared with 2.82 million in March 2014, a rise of nearly 89,000 (3.2%). Out of the 2.45 million VAT and/or PAYE enterprises, only 58,000 (2.4%) operate from more than 1 site. These operated a total of 516,000 local units.