Thousands of ‘zombie’ firms at risk of collapse as HMRC calls in overdue taxes

Tens of thousands of firms are on the verge of collapse as a £27billion tax crackdown threatens to tip struggling ‘zombie’ businesses over the edge, according to a bleak report. 

Research from advisory firm Begbies Traynor showed the number of companies in ‘critical financial distress’ hit 67,369 in the last three months of 2025.

It was blamed on the dismal combination of rising taxes, high inflation, growing joblessness and faltering consumer confidence under Labour.

And more pain is to come, especially for so-called ‘zombie’ firms that have managed to stagger on with the help of Covid support but are now in peril as HM Revenue and Customs looks to recover taxes overdue from the pandemic.

It echoes a recent report from the Resolution Foundation think-tank that a ‘zombie apocalypse’ of such firms could be on the way.

The dismal findings represent a further blow to claims by Keir Starmer and Rachel Reeves that the sluggish economy will turn a corner this year.

Firms have been battered by a rise in national insurance contributions, sharp hikes in the minimum wage, the imposition of a battery of new workers’ rights and a business rates bombshell that has left many hospitality firms struggling to survive.

And in the retail sector, the crucial ‘Golden Quarter’ in the run-up to Christmas was dulled as sales were hit by pre-Budget speculation.

Ric Traynor, executive chairman of Begbies Traynor, said: ‘The continued rise in critical financial distress is clearly concerning for the UK economy.

‘Last year was not easy for UK businesses, and the start of 2026 suggests there is no relief in sight, with the macro-economic environment scarred by geopolitical uncertainty and trade policies.

‘Domestically, an increasing employer tax burden, combined with faltering consumer confidence, rising unemployment and still high interest rates, have added further pressures to the shoulders of business leaders.

‘It will be critical that there are no more surprises from the Government.’

Julie Palmer, partner at Begbies Traynor, said subdued consumer confidence levels have had a ‘painful impact’ on hospitality, retail and housing firms already ‘under considerable pressure’.

She said smaller firms in particular faced ‘very difficult choices’ at the start of 2026 ‘as the weight of slower spending and increased running costs bring them to near breaking point’.

Palmer added: ‘This highly challenging trading environment has created a growing number of “zombie” businesses which are likely to fail unless they can attract new investment or be acquired by more agile companies.

‘While many of these organisations have struggled along for years, we see a new catalyst in 2026 that could push some over the edge, as HMRC starts to call in some of the £27bn in overdue corporation tax, PAYE and VAT following the pandemic.’