Yes you would have to tell the insurance company. Anything that would, in their eyes, make the car more 'nickable' needs to be declared. Furthermore, if you were to spend a fortune installing this stereo system and somebody was to break into your car and steal it, I'm fairly certain you'd be wanting to make a claim against your insurance.
If you don't notify the insurance companies of modifications, you're basically paying a premium for no reason as if you have an accident and the assessor notices undeclared modifications, this will invalidate your insurance.
When the car is MOT'd, it would have to be MOT'd as a 2 seater, as the previous poster has mentioned. I'm fairly certain that they MOT the car according to the V5 but you will have to check this first.