The number of new UK technology incorporations feel 5% in 2024 compared to the previous year, marking the first annual decline since 2020, according to analysis by audit, tax and consulting firm RSM UK.

The data shows a total of 48,518 new tech companies were incorporated in 2024, down from 52,017 in 2023. The number of incorporations also fell for the third consecutive quarter in Q4 2024, from 11,368 in Q3 to 11,031 in Q4.

However, while most UK regions saw a year-on-year decline, Scotland was one of the few regions to experience growth, at 5%, along with Northern Ireland (21%), and the North East (8%).

This bucks the trend of even London, the city which accounts for the highest number of tech incorporations, which saw its first annual decline in five years, down 6% from 26,060 in 2023 to 24,455 in 2024.

“The fall in UK tech incorporations in 2024 points to lower business confidence and a slowing tech sector which will come as more tough news for the Chancellor,” Ben Bilsland, partner and head of technology industry at RSM UK, commented.

“With weak economic growth, high interest rates and high inflation, and businesses set to bear the brunt of the Chancellor’s tax rises, confidence among tech businesses is diminishing.

“Uncertainty in the US, particularly surrounding new policies and potential tariffs, is also partly to blame for caution in UK tech boardrooms as they take a ‘wait and see’ approach.

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“Ultimately, the growing costs associated with starting a business, finding talented people, and scaling it, is viewed as too risky for some entrepreneurs.

“Despite recent positive noises from the government around investing in AI, tech businesses still have to wait until the spring to see the full details and the impact is not expected to be immediate. A forward looking and positive stance on AI is welcomed as it represents a huge growth opportunity for the sector.

“Many tech businesses feel they’ve been overlooked as the Autumn Budget did not include much in the way of fresh policies and funding to directly stimulate the sector.

“It is crucial for the UK that the government delivers a plan to ensure that founders on the cusp of tech evolution have enough incentive to launch their idea in the UK, rather than taking it overseas.

“This may be in the form of generous tax breaks, direct funding or further plans around enterprise zones. Without some form of urgent action, this downward trend in tech incorporations will continue, and the UK will fall behind on the global stage.”

Number of new technology company incorporations – year-on-year comparison

Separate analysis from Beauhurst shows the top five subsectors which saw the highest number of incorporations include application software, marketing brand and advertising, AI, video games, and HR tech and recruitment.

“It comes as no surprise that AI ranks so highly given the surge in interest in recent years,” Henry Whorwood, managing director of research and consultancy at Beauhurst, added.

“In addition, these are just the companies actively working on AI, so the number of businesses set up to commercialise other company’s AI tools will be even higher. Video games has long been a very strong industry for the UK which looks set to continue given the number of innovative companies being launched.”