Tens of thousands of ‘zombie’ firms on brink of collapse, warns report

Tens of thousands of “zombie” firms could go bust in 2026 as companies come under pressure from tax hikes, rising wage bills and weak consumer demand, according to a report.

The latest quarterly red flag alert report from Begbies Traynor revealed a 44% year-on-year jump in companies in “critical” financial distress in the final three months of 2025, at 67,369.

Hospitality firms were among the hardest hit after suffering a difficult Christmas quarter due to weaker-than-expected consumer spending, with hotels seeing a 54% rise in those in critical distress, followed by a 39% jump for bars and restaurants over the past 12 months.

Julie Palmer, partner at Begbies Traynor, said: “During the crucial final quarter of 2025, the UK economy continued to experience subdued levels of consumer confidence.

“This has had a painful impact on the hospitality, retail and housing sectors, which have been under considerable pressure for some time.”

She added that smaller firms nationwide were “starting the new year with some very difficult choices ahead, as the weight of slower spending and increased running costs bring them to near breaking point”.

There are a raft of “zombie” companies, which have struggled along for years, but may be forced into collapse in the year ahead, according to the report.

“We see a new catalyst in 2026 that could push some over the edge, as HM Revenue & Customs starts to call in some of the £27 billion in overdue corporation tax, PAYE and VAT following the pandemic,” said Ms Palmer.

“Over the years, there have been many tipping points for zombie companies, but the heightened level of critical distress combined with weak consumer spending, compounding cost inflation and action from HM Revenue and Customs, could mark another milestone,” she said.

It comes after the recent collapse into administration for retail and hospitality firms, with The Original Factory Shop and Claire’s Accessories appointing administrators this week, alongside Revolution Bars owner The Revel Collective.

Here is a list of firms in critical distress at the end of 2025 by region, according to the red flag report: