Cash flow issues

2,000 construction firms at risk as support ends

Construction workers

Construction workers facing uncertainty (Shivendu Shukla)

On in ten construction firms or sub-contractors in Scotland – equal to more than 2,000 companies – could be forced out of business as temporary protection measures introduced during the pandemic are withdrawn, says a restructuring specialist.

Those safeguards, including restrictions on winding-up processes and the suspension of wrongful trading rules, have likely prevented a significant number of business failures, says Blair Milne, head of restructuring at Azets in Scotland.

Mr Milne, head of restructuring at Azets in Scotland and a specialist on the construction sector, is warning that the withdrawal of this support comes on top of the introduction of new VAT and IR35 taxation rules. 

Sub-contractors are expected to be disproportionately affected with many businesses and sub-contractors under pressure to continue trading.

There are around 21,000 construction businesses in Scotland employing 143,000.

Blair Milne

Blair Milne: cash flow pressure

Explaining the new VAT and IR35 rules, Mr Milne said: “The VAT reverse charge system introduced on 1 March this year means that VAT must now be paid directly to HMRC by the main contractors rather than be passed down the supply chain to sub-contractors. 

“Many sub-contractors will have previously used VAT to assist with their cash flow prior to their quarterly VAT return.  This cash flow benefit is now being removed in its entirety and many small businesses or contractors will not have the reserves to continue trading.

“Cash flow pressure will be further impacted for many following the new IR35 legislation which will require more contractors to pay tax and NIC directly from their pay.

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