There has been a record jump in the number of UK businesses in critical financial distress, according to insolvency specialists.

Businesses in the most distress include those in hospitality, leisure and retail, but the construction industry is also facing challenges.

Insolvency experts Begbies Traynor said a company can be considered to be in critical financial distress if it has an outstanding county court judgment of more than £5,000 or faces a winding up petition.

“The last two years have been really quite stressful trying to run a business,” said Helen Gorman, who decided to close her café bar TwentySix in Cardiff this month due to rising costs.

“The industry as a whole is horrific and some of these challenges I don’t think any government really understands, particularly around VAT rates that we pay. The costs just keep going up, be that supplier costs, be that energy costs,” she told the BBC.

The struggles for businesses comes at the same time as a drop in consumer confidence, with more people concerned over the UK’s financial prospects, as well as their own.

While there is often a jump at the end of the year of companies in critical financial distress, the report found a sharp increase of 50% from September to December last year, taking the number of businesses in this category to 46,583. The record jump, since Begbies Traynor started collecting such data in 2004, was up from 31,201 the three months before.

One factor was HMRC becoming more aggressive in recovering overdue taxes owed.

The number of UK businesses considered to be in significant financial distress meanwhile also rose by 3.5% on the quarter to 654,765.

Ric Traynor, executive chairman of Begbies Traynor, said the figures showed it was “clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025”.

“For many businesses which were already dealing with weak consumer confidence and higher borrowing costs, the increase in National Insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw,” he added.

He said sectors like retail and hospitality could be impacted in particular because they typically “operate on razor-thin margins”.

Business are set to bear the brunt of tax rises coming into effect in April, with hikes in the National Insurance rate and a reduction to the threshold for employers.

Firms have warned the extra costs could impact UK economic growth – the government’s main goal – with employers expecting to have less cash to give pay rises and create new jobs.

Lloyds Bank, the UK’s biggest lender, released research this week suggesting business confidence had “waned further”, with cost rises for firms to slow activity this year.

“I fear 2025 could end up being a watershed moment where thousands of UK businesses ‘call time’ after struggling to survive for years,” Mr Traynor said.

Julie Palmer, regional managing partner at Begbies Traynor, said there was a “sense of business fatigue” after years of cost increases.

“There seems to be nowhere to go, it’s getting harder and harder, costs are increasing, they can’t be passed on to consumers who are not spending anyway,” she said.

A separate report showed a slight fall in confidence among consumers in their own finances and a much sharper one over the prospects for the wider economy.

The long-running survey from GfK showed people’s intentions to spend on big-ticket items fell while the number of people considering putting money aside in savings rose.

GfK said that was a negative for the economy as it was a sign that many people saw dark days ahead and were putting money aside for safety.

Neil Bellamy, consumer insights director at GfK, said: “New year is traditionally a time for change, but looking at these figures, consumers don’t think things are changing for the better.

“These figures underline that consumers are losing confidence in the UK’s economic prospects.”

Ms Palmer said it was difficult to see “any or many green shoots on the horizon”.

“The energy crisis settled down last year – that’s beginning to rear its ugly head again, probably coming behind that the utility companies are making quite a lot of noises about how much water bills need to go up if they are going to avoid facing insolvency,” she added.