The collapse in UK construction net company formation, 2016 to 2025

Ten years, two numbers: incorporations up, net formation almost gone

In 2016, UK construction added a net 30,361 companies to the Companies House register: 53,567 new incorporations against 23,206 dissolutions, across the 19 SIC codes that make up the sector.^[1] By 2025, that net figure had fallen to +1,341, a decline of 95.6% in the space of a decade. The population of active construction companies is still growing, but only just, and the trend line is heading towards zero rather than away from it.

The number on its own understates how dramatic the shift is, because it hides what moved and what did not. This article uses the full 2016 to 2025 annual series, published on our UK Construction Company Formations Index, to separate the two forces behind the collapse: incorporations (business births) and dissolutions (business deaths), and to explain what each one is actually telling you.

The number that did not fall: incorporations rose

It would be easy to assume that a 95.6% collapse in net formation means fewer people are starting construction companies. The data says the opposite. Incorporations across the 19 construction SIC codes rose from 53,567 in 2016 to 67,839 in 2025, an increase of just over 26%.^[1] Demand for starting a construction company, whether from sole traders incorporating, new specialist trades setting up, or existing operators splitting activity across new entities, has not weakened over the decade. If anything, it has strengthened.

Year	Incorporations	Dissolutions	Net formation
2016	53,567	23,206	+30,361
2017	59,074	24,665	+34,409
2018	66,847	40,942	+25,905
2023	78,390	62,924	+15,466
2024	72,679	63,766	+8,913
2025	67,839	66,498	+1,341

Reading left to right along the 2025 row is the entire story in one line: 67,839 new construction companies were incorporated, and 66,498 were dissolved in the same year. The gap between them, once tens of thousands of companies wide, has narrowed to 1,341.

The number that did the damage: dissolutions nearly tripled

Dissolutions rose from 23,206 in 2016 to 66,498 in 2025, an increase of 186%, nearly three times the 2016 level.^[1] That is the entire explanation for the collapse in net formation. Incorporations grew by roughly 14,000 companies over the decade. Dissolutions grew by roughly 43,000. The sector is not failing to attract new entrants. It is losing existing companies at a rate that has overtaken new entry almost entirely.

This matters for how the headline should be interpreted. A 95.6% collapse in net formation sounds like a story about business confidence collapsing, and to a degree it is, but the mechanism is specifically an exit-rate story, not an entry-rate story. Anyone reading this data as "people have stopped starting construction companies" is reading it backwards.

What "dissolved" actually counts

A company is recorded as dissolved once Companies House removes it from the register with company_status=dissolved. That happens through two distinct routes, and the published dataset does not separate them:^[1]

• Voluntary strike-off. A director applies to have a solvent company struck off (form DS01) because it is no longer needed, has completed its purpose, or is being wound down in an orderly way with no creditors owed money.
• Post-insolvency dissolution. A company that has been through creditors voluntary liquidation, compulsory liquidation or administration is eventually dissolved once the insolvency process concludes.

Both routes end in the same company_status flag, and the net formation dataset counts both the same way. That means the 66,498 dissolutions in 2025 is not a formal insolvency count. Our separate UK Construction Insolvency Index, drawn from Insolvency Service record-level data, tracked 4,188 formal construction insolvencies in 2025, a fraction of the total dissolution count. The remaining tens of thousands of dissolutions are, in large part, voluntary closures: companies whose directors chose to shut them down rather than companies that were forced to. We cover the formal insolvency trend and what it means for unpaid subcontractors in our guide to UK construction insolvency risk, which is the right reference for creditor-recovery questions specifically. This article is about the broader register-level churn, of which formal insolvency is one component, not the whole.

That distinction matters because the two datasets can and do move together directionally without being the same measurement. Rising financial distress plausibly pushes up both formal insolvencies and the rate at which marginal or struggling companies are voluntarily struck off before they reach that point. The net formation collapse is consistent with a harder trading environment across the whole spectrum, from companies that fail outright to companies that are quietly closed down by directors who see the writing on the wall early.

Domestic housebuilding: the first net-negative year on record

Within the wider construction universe, one segment crossed a threshold that the sector as a whole has not yet reached. Construction of domestic buildings, SIC code 41202, the code covering companies building houses and residential developments, recorded 16,527 incorporations against 16,838 dissolutions in 2025.^[1] The net figure, -311, is negative. More domestic housebuilding companies were dissolved than were formed in a single calendar year, the first time this has happened in the dataset's 2016 to 2025 coverage.

Year	Domestic buildings (41202) incorporations	Dissolutions	Net formation
2016	8,766	3,117	+5,649
2023	20,747	15,646	+5,101
2024	18,824	16,681	+2,143
2025	16,527	16,838	-311

The domestic building segment is more directly exposed than civil engineering or specialist trades to the things that hit small housebuilders and developers hardest: mortgage rate levels, buyer confidence, land and finance costs for smaller schemes. It also, notably, saw incorporations fall in absolute terms from 2023 to 2025 (20,747 to 16,527), unlike the all-construction union figure where incorporations kept rising. Domestic housebuilding is the one part of this dataset where new company formation itself, not just net formation, has gone into reverse.

The 2026 partial data: a rebound, not yet a trend

The most recent data available, covering January to April 2026 and still provisional pending full settlement, shows a marked improvement. Net formation across all construction stands at +4,055 for the four months, and domestic buildings at +1,095.^[1] Both figures are well above the corresponding full-year 2025 totals, on a partial-year basis.

Two cautions apply before reading this as a turnaround. First, four months of provisional data is not a settled annual figure, and Companies House filings continue to update historical periods as records are processed, which is why the full 2016 to 2025 series is treated as final and 2026 is kept separate in our index methodology. Second, construction company formation has a well-documented seasonal pattern, explored in our article on why construction formations spike every March: the January to April window includes the annual peak month and is not representative of the full year's run rate. A strong start to 2026 is a genuinely positive early signal, but it would take several more months of data, and ideally a second data point beyond the seasonal peak, before it is fair to call this a confirmed reversal of the decade trend rather than a partial-year artefact.

We update the underlying index monthly as new Companies House data settles, and will revisit this article's conclusion on the 2026 trend once the full year is available.

What this means if you run a construction business

Counterparty risk has structurally increased

With dissolutions across the sector running almost level with incorporations, and one major segment (domestic buildings) already net negative, the base rate at which any given contractor, developer or client you deal with closes, whether voluntarily or through insolvency, within a few years of you starting to work with them is materially higher than it was in 2016. This is the same underlying pressure that drove the 49.9% rise in formal construction insolvencies over the same period, covered in our insolvency risk guide. The practical response is unchanged: short payment terms, staged invoicing on longer contracts, checking a contractor's Companies House filing history before extending significant credit, and keeping a clear paper trail on every contract and retention.

Rising dissolutions are not, on their own, a reason to avoid incorporating

It is tempting to read a near-tripling of dissolutions as evidence that incorporating a construction business is a bad idea. That does not follow from this data. A large share of the dissolution total is voluntary strike-off, directors closing companies that served their purpose, rather than businesses failing outright. The incorporation decision for a sole trader or subcontractor should still turn on the tax and cash flow comparison covered in our guide to CIS sole trader versus limited company: whether the monthly CIS reclaim via the Employer Payment Summary, retained profit taxation and gross payment status thresholds work in your favour at your turnover and drawings level. What this data does argue for is building a realistic view of company lifespan into your planning from day one: keeping accounts current, understanding your options for solvent closure if the business's purpose ends, and not assuming every construction company is a permanent structure.

Track the segment you actually operate in

The all-construction figure and the domestic buildings figure moved very differently by 2025, one still narrowly positive, the other already negative. If your trade sits primarily within housebuilding and residential development, the domestic buildings series is the more relevant leading indicator for your own segment's health than the aggregate figure. The full segment breakdown, including civil engineering and specialised construction activities, is published on our UK Construction Company Formations Index.

If you want help assessing your own incorporation position, cash flow exposure or CIS reclaim process against this backdrop, our construction accounting services model the numbers on your actual turnover and deductions. Get in touch to talk it through.

Sources

1. Trade Tax Specialists, UK Construction Net Formation Index, compiled from Companies House Advanced Search API records (incorporations by incorporated_from/incorporated_to; dissolutions by company_status=dissolved and dissolved_from/dissolved_to), 19 construction SIC codes, 2016 to 2025 settled annual data plus provisional January to April 2026. Data sourced from Companies House under the Open Government Licence v3.0. Full annual series, segment breakdown and methodology at tradetaxspecialists.co.uk/research/uk-construction-index.