New data shows an 86% surge in UK software and AI company formations whilst retail declines

New quarterly data has revealed the UK’s sharpest growth in software and AI company formations on record, outpacing every other sector in Q1 2026.

Your Company Formations (YCF),  UK company formation agent, today published its inaugural Business Formation Barometer. Q1 2026 data from the report reveal that while overall UK company formations fell 3.3% year-on-year, one sector defied the trend entirely. Technology and digital formations instead grew 20.4%, which was largely driven by an 86% surge in AI and software development registrations.

Business and domestic software development grew from 4,035 to 7,506 registrations in a single quarter. 

The growth was sustained across all three months of the quarter, including February, when Companies House doubled the cost of digital incorporation from £50 to £100. While fourteen other sectors declined in the month that the fee doubled, software development, instead, grew 10.8%. Technology was the only major sector outside financial services to maintain growth through every month of the quarter.

There is no dedicated SIC code for artificial intelligence companies in the UK’s classification system. Businesses working in AI register primarily under business and domestic software development, making it the closest available proxy for AI formation activity. The full-year 2025 growth rate for the same SIC code was 38.4%, according to Beauhurst’s New Startup Index 2026. Q1 2026’s 86% growth rate has already more than doubled that full-year trajectory in a single quarter.

“The wider barometer data we produced show the UK formation market splitting along a clear digital-physical divide. The three sectors that grew in Q1 2026 (technology, financial services, and professional services)  share a common profile: low fixed costs, scalability, and demand not tied to a physical location. Whilst retail declined across all three quarters, including 16.7% in March. “The 86% surge in software and AI registrations shows us that AI businesses are not being deterred by higher costs or regulatory changes being introduced by the government. Britain is producing a wave of AI company founders that is quickly growing,” says Robert Engeham, Director of Your Company Formations.

Software publishing registrations also grew 45.4% in the same period, and web portal formations rose 27.4%, reinforcing the picture of a broad-based digital formation boom concentrated in the technology sector.

Overall UK company formations reached 206,251 in Q1 2026, returning the market to 2022 levels following the record-breaking peaks of 2023 and 2024. Against that backdrop, the technology sector’s growth is the most striking for running directly counter to the wider market trend.

The data also shows that foreign company registrations in the UK fell 49.1% in Q1 2026. Their Q1 2026 data reveals that while 206,251 companies were registered in the UK during the quarter, foreign registrations fell at more than fourteen times the rate of the overall market. Likely due to the Companies House fee increases and ECCTA 2023 identity verification requirements which have created proportionally more costs and complexities for foreign founders, compared to domestic ones.