Looking back on 2025, UK businesses operated in an environment largely defined by constraint rather than contraction. The economy avoided a sharp downturn and inflation eased gradually, but for many these improvements offered limited immediate relief. Cost pressures endured, demand was uneven, and confidence - both consumer and corporate - remained fragile.

In this context, many management teams across virtually all sectors, were required to make difficult, often defensive decisions to sustain operations and preserve financial flexibility.

This proactive approach was reflected in insolvency data across 2025, which, encouragingly, pointed to a degree of stabilisation following the elevated levels of previous years. Although insolvency volumes remained high by historical standards, the rate of increase slowed and, at times, levelled off .

Restructuring as a strategic response

One of the most notable developments during 2025 was the evolving role of restructuring. Increasingly, restructuring was not viewed as a last resort, but as a strategic tool to address imbalance within a business. Early engagement with lenders, landlords, HMRC and advisers enabled many organisations to explore informal solutions, renegotiate obligations and restructure operations without entering formal insolvency processes. For example, we know that more companies have sought advice and assistance on ‘Time to Pay' (TTP), which led us to our own solution, launched in September 2025.

Where formal procedures were required, they were often used constructively to preserve value. Administrations, company voluntary arrangements and business sales allowed viable operations to continue under revised structures, safeguarding employment and maintaining customer relationships. The key differentiator in outcomes was timing; businesses that sought advice early often retained greater control and had access to a wider range of options than those that delayed.

Managing tax arrears through Time to Pay

As cash flow pressures persisted throughout 2025, many otherwise viable businesses found it increasingly difficult to meet tax liabilities at the appropriate time. In this context HMRC's TTP regime has continued to provide a practical mechanism for managing temporary tax arrears across VAT, PAYE, National Insurance and Corporation Tax.

From our years of experience advising businesses in this position, TTP arrangements are most effective when approached early and grounded in a clear understanding of both the level and debt, and future trading prospects. Indeed, since the launch of our own TTP solution we've seen interest from businesses across a variety of sectors, and we've assisted companies across the UK.

While repayment plans are most commonly agreed over a 12 month period, longer periods can be achieved where affordability and ongoing viability can be demonstrated.

As with wider restructuring activity, structured and transparent engagement with HMRC can provide valuable breathing space, reduce the risk of enforcement action and support business continuity while financial pressures are addressed. We always advise that businesses facing mounting tax arrears take early professional advice - including from experienced advisers such as the team at PKF Littlejohn Advisory - which can materially improve outcomes and help identify a sustainable route forward.

Lessons from 2025

Several clear lessons emerged over the past year. First, financial distress rarely arrives without warning. Cash flow pressure, rising arrears and increased creditor engagement are typically visible well in advance. Second, transparency and communication with stakeholders play a critical role in navigating periods of stress. Businesses that engaged openly were better positioned to secure support and reach pragmatic solutions. Finally, sector-specific approaches proved far more effective than generic responses, underlining the importance of experienced, tailored advice.

Looking ahead to 2026

As businesses turn their attention to 2026, the outlook remains what we can call ‘cautiously balanced'. There are signs that inflation and interest rates may ease further, potentially improving financing conditions and supporting investment. The government has also signalled its intention to promote growth through targeted funding initiatives and regulatory reform, though the impact of these measures will depend on delivery and timings.

The broader political backdrop remains fragile, and UK political parties of all stripes are striving for attention and solutions to empower business big and small, while at the same time attempting to balance the books of UK PLC.

While there are undoubtedly some green shoots of recovery, the coming year is unlikely to bring a rapid return to more benign trading conditions. Cost pressures will persist, insolvency levels are expected to remain relatively high, and competition for market share will remain intense. In this environment, vigilance and adaptability will be essential.

Businesses will need to continue reviewing their risk management frameworks, stress-testing financial assumptions and ensuring that management information supports timely decision-making. Seeking professional advice at an early stage will remain a critical step in protecting value and navigating uncertainty.

Strengthening foundations for the future

If 2025 demonstrated anything, it is that resilience is built through preparation rather than reaction. Organisations that invested in governance, financial discipline and early intervention were better able to withstand pressure and position themselves for recovery.

As we dive into 2026, businesses across all sectors have an opportunity to build on these lessons. By remaining proactive, engaging openly with advisers and stakeholders, and addressing challenges before they escalate, organisations can strengthen their foundations and improve their prospects for sustainable growth.

While uncertainty remains a defining feature of the economic landscape, the tools to manage risk, such as our tailored TTP service, and respond effectively are well established.

For further information visit PKF Littlejohn Advisory