UK company formations are falling — except in software and AI, up 86% in a quarter

New analysis of Q1 2026 incorporations, reported by SME Business News on 28 July 2026, found that overall UK company formations fell 3.3% year on year while technology and digital formations grew 20.4%. The growth was driven by an 86% surge in AI and software development registrations, with business and domestic software development rising from 4,035 to 7,506 registrations in a single quarter. Retail formations continued their decline.

Where the figures come from

The data is drawn from the inaugural Business Formation Barometer published by Your Company Formations, a UK company formation agent. That provenance matters and is worth stating plainly: this is analysis published by a commercial formation agent, not a release from Companies House or the Office for National Statistics. The underlying incorporation data is public, but the sector groupings and comparisons are the publisher's own. The findings were also covered by UK Tech News.

What the publisher said

“Technology has reduced the barriers to starting businesses, but it has not reduced the importance of reputation. Businesses that establish reliable corporate foundations early are often better positioned to build long-term commercial relationships as they grow.”

— Robert Engeham, Chief Executive, Your Company Formations Ltd

Engeham argues that as artificial intelligence changes how businesses are assessed by customers, lenders, suppliers and investors, entrepreneurs should place more weight on trust, governance and transparent corporate information. Readers should note that Your Company Formations sells company formation and corporate services, so it has a commercial interest in the topic it is commenting on.

What a formation count does and does not tell you

Two things follow for anyone deciding whether to incorporate in the United Kingdom.

Fees are rarely the deciding factor

Reporting on the Barometer notes that software formations continued growing through February 2026, the month the digital incorporation fee at Companies House rose from £50 to £100, while formations in fourteen other sectors declined. If a fee change of that size were the primary driver of incorporation decisions, you would expect it to depress every sector equally. It did not. Sector demand appears to be the larger variable. Anyone checking the current fee should confirm it directly with Companies House rather than relying on a figure quoted in an article.

Sector popularity is not a recommendation

A high volume of software company registrations tells you what other people are doing. It does not tell you whether a limited company is the right structure for how you earn. That decision turns on your profit level, how you take money out of the business, whether you need limited liability, who your customers are, and how much administration you are willing to carry.

The structure question underneath the story

For most people reading a formations story, the live question is simpler than the data: limited company, or stay a sole trader? The trade-offs are reasonably stable regardless of what the quarterly numbers do.

• Sole trader: simpler filing, no public accounts, personal liability for business debts.
• Limited company: separate legal entity, limited liability, public filings at Companies House, more administration and usually more accountancy cost.
• Profit level matters. The tax comparison between the two changes as profits rise, and there is no single threshold that applies to everyone.

This article covers England, Wales, Scotland and Northern Ireland, where incorporation is handled by Companies House. Tax treatment can differ for Scottish taxpayers on income tax rates.

Common questions

Are UK company formations rising or falling in 2026?

Both, depending on sector. Analysis of Q1 2026 found overall formations fell 3.3% year on year, while technology and digital formations grew 20.4% and AI and software development registrations rose 86%. Retail formations continued to fall.

How many software companies were registered in Q1 2026?

Business and domestic software development registrations rose from 4,035 to 7,506 in the quarter, according to Your Company Formations' Business Formation Barometer.

Is this data from Companies House?

The underlying incorporation records are public, but the analysis and sector groupings were published by Your Company Formations, a commercial company formation agent, not by Companies House or the Office for National Statistics.

Did the Companies House fee increase reduce company formations?

Reporting on the Barometer notes that software formations kept growing through February 2026, when the digital incorporation fee rose from £50 to £100, while fourteen other sectors declined. That suggests sector demand mattered more than the fee, though the data does not isolate cause and effect.

Should I set up a limited company because AI companies are growing?

Sector trends are not a reason to choose a structure. The decision depends on your profit level, liability needs, how you take money out of the business and how much administration you want to carry.

In short

Q1 2026 analysis shows UK company formations down 3.3% overall, with AI and software registrations up 86% and retail still falling. The data comes from a commercial formation agent rather than an official statistics body. Sector momentum is interesting context, but the structure decision for any individual business rests on profit, liability and administration — not on what is growing fastest on the register.

Based on reporting by SME Business News, 28 July 2026.