Regulatory changes have been blamed for the number of new companies across the UK falling to its lowest first-half total in five years.
Mandatory identity verification for directors and persons with significant control, introduced last November, as well the doubling of Companies House incorporation fees from February this year, are thought to have deterred start-ups.
Company formation slowed to 402,000 in the first half of 2026, down 5.7% on the same period last year and was the second consecutive half-year decline.
However, the active company base grew to 5.66m, indicating a resilient underlying business environment, and quarterly data tells a story of adjustment rather than retreat, according to the latest NatWest/RBS and Beauhurst New Startup Index.
Identity verification under the Economic Crime and Corporate Transparency Act 2023 is likely to have contributed more significantly to the slowdown than higher incorporation fees, say the authors.
“Whilst both may cause friction in the short term, in the longer term, these changes are intended to raise the bar for incorporation, filtering out low-intent fraudulent registrations in favour of companies with greater longevity.”
London remained the dominant hub with 136,000 new companies. Regionally, activity moderated, but the differences “were striking”, say the authors. Excluding London, Scotland recorded the fastest growth from H2 2025 at 3.73%, followed by the East Midlands at 3.3%.
“Overall, our findings suggest the business population is adjusting to a changing regulatory environment rather than experiencing a sustained slowdown,” say the authors.
Darren Pirie, head of accelerator & partnerships at NatWest Group, says: “The findings also suggest a maturing entrepreneurial landscape. While incorporations have eased, the expanding active business base indicates that business creation remains robust and founders are building with greater intent and longer-term ambition.
“This points to a healthier, more sustainable ecosystem focused on growth, innovation and lasting economic value.”
Technology businesses were a standout performer during the first half of the year. Application software became the UK’s most active startup category with 28,100 new businesses incorporated.
The wider digital and technology sector also recorded strong growth, reflecting continued innovation and investment in areas such as AI and emerging technologies.
Sebastian Burnside, chief economist at Royal Bank of Scotland, added: “Britain’s start-up economy is adjusting, not retreating.
“While incorporations eased in the first half of 2026, the active company base has continued to grow, showing the underlying resilience of UK entrepreneurs against a turbulent backdrop.
“The shift towards software and digital businesses is especially striking and speaks to the economy’s changing centre of gravity as technology transforms what we do and how we do it.
“This underlines the importance of backing the founders who are driving those opportunities wherever they are, connecting them to the right support, and helping turn ambition into long-term growth.”
Daily Business Bulletin: Subscribe here for our free morning bulletin of breaking news
#Businesses #adjusting #red #tape #startup #slowdown #Daily #Business