Why UK construction company formations spike every March

The data: a clear annual rhythm in UK construction formations

Each year around 65,000 to 70,000 new construction companies register with Companies House across the nineteen construction SIC codes. Plotting monthly totals across the decade from 2016 to 2025 reveals a seasonal rhythm that repeats with unusual consistency: formations accelerate through February, peak sharply in March, drop in April and drift to a December floor.^[1]

The full dataset and the interactive monthly chart are published on our UK Construction Company Formations Index, which draws on Companies House public records under the Open Government Licence. This article uses that data to explain what is driving the March spike and what it means for a sole trader thinking about when to incorporate.

What the numbers actually show

Using the union series, which counts each company once regardless of how many construction SIC codes it is registered under, and restricting the analysis to the ten complete calendar years 2016 to 2025 (provisional months excluded per the dataset methodology):^[1]

Month	Average formations 2016 to 2025	vs overall monthly mean
January	5,920	+2.2%
February	6,097	+5.3%
March	6,643	+14.7%
April	5,890	+1.7%
May	5,803	+0.2%
June	5,729	-1.0%
July	5,891	+1.7%
August	5,639	-2.6%
September	5,959	+2.9%
October	6,177	+6.7%
November	5,588	-3.5%
December	4,143	-28.4%

The overall monthly mean across all 120 months is approximately 5,790. March runs 14.7% above that figure, and March-to-April represents a fall of approximately 11.3% from peak to the following month. The pattern holds across all ten years including 2020, where March (5,126) was still above the COVID-suppressed April (3,186), and 2021, where the post-lockdown rebound inflated every month but March remained the highest.

December's shortfall of 28.4% below the mean is not simply seasonal quiet: it reflects a genuine absence of the tax-driven incentive that operates in March, combined with the practical compression of Companies House processing around the Christmas period.

The mechanism: the UK tax year and what it means for incorporation timing

The UK tax year runs from 6 April to the following 5 April. That boundary is the single most important date in the calendar for a sole trader considering whether and when to incorporate.

Why the boundary matters

A sole trader who incorporates on, say, 1 June faces a sequence of complications that does not arise if they incorporate before 6 April:

• The sole-trader period from 6 April to 31 May must still be reported on a Self Assessment return. Income from those eight weeks and the allowable expenses against it must be separated cleanly from the company's income from 1 June onwards.
• Any CIS deductions suffered as a sole trader before incorporation cannot be transferred to the company. They remain on the sole trader's record and are recovered through the sole-trader Self Assessment return, not through the company's Employer Payment Summary.
• The company's first accounting period is a short year, from 1 June to whatever date the company chooses for its year end. A short accounting period must still be filed on time and may produce an awkward mismatch between the company's year and the tax year, which complicates personal tax planning if the director pays themselves dividends.

None of these complications is insurmountable. But they are avoidable. A sole trader who registers the company in March and begins trading on 6 April starts the company on the first day of the new tax year. The sole-trader record closes cleanly on 5 April. The company opens with a full twelve-month accounting period. There is no overlap, no split and no double set of books to reconcile in year one.

The CIS amplifier

For sole traders operating inside the Construction Industry Scheme, there is an additional driver. CIS deductions are taken at source, typically at 20% of the labour element of each payment for a registered subcontractor, and the mechanism for getting over-deducted money back differs sharply between a sole trader and a limited company.^[2]

As a sole trader, you recover over-deducted CIS through the annual Self Assessment return after the tax year ends on 5 April. You cannot file until the year is closed. In practice, the cash comes back several weeks or months after filing, which means carrying the shortfall throughout the year. On a £60,000 gross contract year with 20% deducted on labour, that shortfall can run well into four figures before Self Assessment resolves it.

A limited company does not wait. It offsets the CIS deducted from its payments against the PAYE and CIS it owes HMRC each month, reporting the offset on the Employer Payment Summary (EPS). The offset converts an annual repayment into a monthly cash-flow benefit: instead of waiting up to roughly eighteen months end-to-end for the Self Assessment cycle, the company recovers value in the same month the deductions arise. The full mechanics of this are covered in our guide to CIS limited company deduction reclaims via the EPS.

For a sole trader who is already planning to incorporate, starting the company on 6 April means the monthly EPS offset is available from April. Incorporating in, say, October instead means the sole trader continues to carry CIS deductions through the Self Assessment cycle for the remainder of that tax year, losing several months of the cash-flow benefit they would have gained by waiting for the tax-year boundary.

The limited company versus sole trader decision itself

The March formation spike is a timing phenomenon, but the underlying question it reflects is whether incorporation is the right move at all. On that the data is neutral: it records the decision that thousands of construction businesses make each year, not whether those businesses made the right call.

The honest CIS-specific picture is nuanced. We cover the full comparison in our guide to CIS sole trader versus limited company, but the key points are these.

Where the limited company wins

• Real-time CIS recovery. The monthly EPS offset converts the annual wait into a within-month cash flow, which is often the single strongest practical reason to incorporate for a subcontractor suffering heavy deductions.
• Retained profit. A company pays Corporation Tax (19% on profits under £50,000 for 2026/27) and the director only pays dividend tax on what they draw out. Profit left in the company is not taxed again until it is extracted, which suits a subcontractor who can live on less than their trading profit in strong years.
• Gross payment status at a higher turnover threshold. A limited company can qualify for gross payment status on £30,000 of net CIS turnover per director, or £100,000 in total. A sole trader needs £30,000. A two-director company can reach the per-director route with £60,000 of net turnover, a path that is not available to a single individual.

Where the sole trader is often better

• At modest profit levels fully extracted. On a realistic £55,000 taxable profit for 2026/27 where all profit is drawn out, a sole trader pays approximately £11,789 in income tax and Class 4 National Insurance. A limited company extracting all of its profit pays approximately £12,524 once employer National Insurance at 15%, Corporation Tax at 19% and dividend tax at 10.75% are added together. The company costs more, not less, at this profit level and extraction rate, because the dividend rate rises from 6 April 2026 to 10.75% in the basic band, 35.75% in the higher band and 39.35% in the additional band, narrowing the company advantage compared to the old rates.
• Lower admin and filing burden. A sole trader files one Self Assessment return per year. A company files a Confirmation Statement, annual accounts and a Corporation Tax return, registers as an employer, runs a monthly payroll and files the EPS each month. The compliance cost is real.
• Gross payment status transfers with the entity, not the person. A new company must apply for gross payment status in its own right and build a clean 12-month compliance record before it qualifies. A sole trader who has held gross payment status and incorporates in March will find the company trading under 20% deductions from April while it accumulates the qualifying record.

The March timing decision and the incorporation decision are separate. If your figures do not support a company, incorporating before 6 April to get the clean start date is still the wrong move. If your figures do support a company, the March window is the efficient one. Our construction accounting services model the comparison on actual turnover, deductions and drawings before making a recommendation.

CIS on incorporation: the practicalities

If you conclude that incorporation is right and you register in March, there are four CIS-specific steps to handle before 6 April to avoid starting the new tax year with gaps in your compliance.

Register the company as a CIS subcontractor

Gross payment status held by the sole trader does not transfer to the company. The company must register separately with HMRC as a subcontractor. Until it is registered, contractors will deduct at the 30% unregistered rate, not the 20% registered rate, costing the company an extra ten percentage points on every labour payment. Registration can be done online through the Government Gateway and usually resolves within a day or two, but it requires the company to have its own UTR, which takes up to ten working days to arrive after Companies House registration. Registering the company in early March rather than late March gives enough time for the UTR to arrive and the subcontractor registration to be processed before the first invoices go out as a company.

Register the company as a CIS contractor if you pay your own subcontractors

If the company will pay its own subcontractors under CIS, it must register as a contractor in its own right and file monthly CIS300 returns from the first month in which it makes a CIS payment. The sole trader's contractor registration does not carry over. Our guide to contractor monthly CIS responsibilities covers the filing obligations once registered.

Register as an employer and set up the payroll

To use the monthly EPS offset, the company must operate a PAYE scheme, even if the only employee is the director drawing a small salary. The EPS is filed through the PAYE scheme, and without a live PAYE registration the offset cannot be claimed. Registration is done through the Government Gateway and typically takes up to five working days. Aim to have this in place before the company's first payday in April.

Confirm the sole trader's final CIS position

Any CIS deductions suffered by the sole trader up to 5 April remain on the sole-trader record and are recovered through the final Self Assessment return, not through the company. Make sure the sole trader's payment and deduction statements for the last year are complete and filed before the 31 January Self Assessment deadline. Our guide to how to claim a CIS tax refund covers the mechanics of maximising the sole-trader reclaim in the final year.

What the December floor tells us

The December average of 4,143, some 28.4% below the monthly mean, is the mirror image of March. There is no tax-calendar deadline pulling sole traders towards December incorporation. Christmas shutdown compresses the working month. And any sole trader who thinks about the question in December faces a simple calculation: waiting three to four months until March costs nothing and produces a significantly cleaner outcome.

The December floor therefore reinforces the March peak interpretation. This is not just a seasonal dip in business activity: it is the rational response of a population of decision-makers who understand, at least intuitively, that March is the right window and December is not. The data reflects that judgement at scale.

Using the data in practice

If you are a sole trader in construction considering whether and when to incorporate, the historical pattern suggests you are far from alone in looking at this in the first quarter of the year. The question is whether you are doing so with the right analysis.

The March timing advantage is real but secondary. The primary question is whether a limited company structure makes sense for your turnover, your CIS deduction exposure, your profit level and how much of that profit you need to draw each year. If it does, March is the efficient month to act. If it does not, no timing advantage changes that.

For a CIS subcontractor, the monthly EPS offset for deductions suffered is the single strongest argument for a company at any profit level, because it converts a year-long cash shortfall into a within-month recovery. The tax saving at modest profit levels is often smaller than expected, or negative if all profit is extracted. The decision deserves the numbers, not a rule of thumb.

Our CIS refund service handles the final sole-trader reclaim in the year you incorporate. Our gross payment status service covers the application for the new company once it has built its qualifying record. If you want to talk through whether and when to incorporate, get in touch.

Sources

1. Trade Tax Specialists, UK Construction Company Formations Index, compiled from Companies House Advanced Search API public records. Data sourced from Companies House under the Open Government Licence v3.0. Full monthly series and methodology at tradetaxspecialists.co.uk/research/uk-construction-index.
2. HM Revenue and Customs, Construction Industry Scheme: guide for contractors and subcontractors (CIS340), GOV.UK. Available at gov.uk/government/publications/construction-industry-scheme-cis-340. Licenced under the Open Government Licence v3.0.