Business births, deaths and survival rate - The Herefordshire Partnership

Business births, deaths and survival rate

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Statistics relating to the registration of businesses on the VAT (Value Added Tax) and PAYE (Pay As You Earn) tax scheme provide a guide to business births, deaths and survival rates. Previously only data from VAT registrations was used, but starting from a baseline of 2007 (published in 2008), statistics include those registered for PAYE as well (i.e. employing businesses).

A business is legally required to register for VAT when its annual turnover reaches a certain threshold. This threshold changes year on year, but was £67,000 annually as of June 2008. PAYE is the system by which employers pay tax and national insurance contributions on behalf of their employees and is a legal obligation for any payments that an employee receives as a result of working for an organisation.  Previously statistics based solely on VAT data did not capture businesses that had a small turnover.

A business birth is defined as a business that was present in a given year, but did not exist in the previous two years. Births are identified by comparing the annual active business population between years.

An active business is defined as a business that had either turnover (based on VAT) or employment (based on PAYE) at any time during the reference period.

A business death is defined as a business that was active in a given year, but was no longer active in the following two years.  In order to provide an early estimate of deaths, an adjustment has been made to the 2006 and 2007 deaths to allow for reactivations.  These figures are provisional and subject to revision.

In 2007 there were a total of 870 business births in Herefordshire and an estimated 705 deaths. The total active business population was 8,135.



To allow comparison between areas the rate of business births per 10,000 population aged 16 years and above is calculated. For Herefordshire in 2007 this rate was 59.2. This was higher than the rate for the West Midlands (55.5), but lower than for England as a whole (64.2).

Business births, active businesses and business deaths are all classified by size, in terms of their number of employees.  Table 3.5 shows the proportions of these groups for Herefordshire, the West Midlands and England. The size of active businesses in Herefordshire in 2007 was similar to that seen regionally and nationally.

The businesses with highest proportion of births and deaths, were those with 0-4 employees. In Herefordshire they accounted for 90% of births and 91% of deaths, in 2007. Businesses with 5-9 employees accounted for 7% of births and 6% of deaths. The proportion of births and deaths for larger businesses (over 10 employees) were even lower.

Table 1. Proportion of business births, deaths and active businesses by employee number, 2007

Source: ONS - Crown copyright

Business survival rate

The business survival rate is defined as the percentage of new businesses registered for VAT or PAYE tax schemes, in a given year, that are still operating after a given time period. For example in Herefordshire out of all the new enterprises that were registered in 2002, 65% were still trading after three years. Data for Herefordshire covers the period 2002 to 2006, showing a survival rate for up to five years after registration.

Chart 2. Business survival rate up to five years after registration, for enterprises registered in 2002

Source: ONS - Crown copyright

In Herefordshire the survival rates dropped from 92% after one year to 49% after five years (registration year 2002).

Herefordshire, in the first two years after 2002, had a slightly lower survival rate (78%), compared to the West Midlands region (79%) and England as a whole (79%). After three years however the survival rate for Herefordshire businesses reduced at a slower rate than England and the West Midlands. This resulted in Herefordshire having a greater five year survival rate (49%) compared to England (45%) and West Midlands (46%).

Between 2002 and 2006 both the one year and the three year survival rate showed an increase, with this being the case for Herefordshire, the West Midlands and England as a whole (chart 2).

Over this period the one year survival rate was similar in Herefordshire compared to regionally and nationally, but the three year rate was consistently higher.  This suggests that a higher proportion of businesses are 'surviving' longer in Herefordshire compared to regionally or nationally.  After three years, nearly 70% of Herefordshire businesses registered in 2004, were still active, compared to 65% in England and 66% in the West Midlands region.

Chart 3. 12 month and 36 month survival rate for Herefordshire, the West Midlands and England, 1995 to 2004.

Source: ONS - Crown copyright

By calculating the change (year on year) in the business survival rate, we can see at what stage a business is more at risk of de-registering. Chart 4 shows the 'drop out' rates for Herefordshire, the West Midlands and England over five years for enterprises registered in 2002. This highlights that for businesses in England as a whole there was peak in the ‘drop out’ rate at three years when the percentage of businesses that de-registered was over 15%. This then decreases by around half to 7% by five years. In general Herefordshire has a lower drop out rate after three years than both the West Midlands and England as a whole.

Chart 4. Drop out rate over five years for enterprises registered in 2002

Source: ONS - Crown Copyright

This data shows a greater degree of variation for Herefordshire compared to the West Midlands or England as a whole, a result of the relatively small business population on which the data is based. In addition, the peak in the drop out rate varies depending on the year of registration, but is generally between two or three years after registration. This suggests that this could be a key time when Herefordshire businesses may benefit from additional support. 

For future Local Authority Economic Assessments it may be worth seeking information from businesses that are in their first three years of trading about the support they have used and what else would be useful.  Business Link, a provider of support to businesses, may be potential source of information to explore for future assessments.