For construction businesses across the UK, delivery delays, cost pressures and tightening funding conditions are increasing cash flow strain. Paul Smith, PKF Advisory Partner, explains the risks facing the sector and why HMRC Time to Pay, forecasting and early restructuring advice are becoming more important in 2026.
The UK construction sector continues to operate in a challenging environment. Construction insolvencies remain the highest of any UK sector, with approximately 4,450 failures in 2025 (up 9% year-on-year) and a further 1,180 insolvencies in Q1 2026. While activity remains relatively resilient in parts of the market, these figures underline the sustained pressure on margins and liquidity across both contractors and the wider supply chain.
Why construction businesses are facing growing cash flow pressure
We have supported clients across multiple disciplines in the construction sector, from subcontractors to housebuilders. While our assignments have been advisory in nature, we were also involved in the administration of Caldwell Construction, a major UK groundworks and civil engineering contractor, in January 2026.
A key issue was the timing of project delivery, with schemes not coming online as anticipated, creating a gap between expected and realised cash flow. This is a dynamic we consistently see across the construction sector.
These pressures are also evident at scale. Vistry, one of the UK’s largest housebuilders, reported a decline in completions of around 9% year-on-year, highlighting ongoing margin pressure. This sits against a backdrop of persistent cost inflation, with materials increasing by 6–8% year-on-year and labour costs rising by approximately 7%.
Supply chain pressure across the UK construction sector
These dynamics are now clearly feeding through into the wider supply chain, as seen by the collapse of National Timber Group, one of the UK’s largest independent timber distribution and processing companies. Their performance deteriorated from a profit of £16.9 million to a loss of £6.1 million prior to entering administration. Payment terms are typically 54–62 days, while retentions can tie up 3–5% of turnover, placing additional strain on working capital.
HMRC Time to Pay and other practical steps for construction businesses
For UK construction businesses, maintaining control over cash flow and forward planning is critical. HMRC arrears have increased by approximately ~14% year-on-year, and Time to Pay arrangements are now a common feature of restructuring discussions.
We have supported clients with robust financial forecasting, rolling 13-week cash flow modelling, securing HMRC Time to Pay arrangements and refinancing working capital and asset finance facilities. These measures are most effective when businesses engage early, before liquidity pressures become acute.
What this means for construction businesses in 2026
Taken together, delays in delivery, cost inflation and tighter funding conditions are converging to create sustained pressure on margins and cash flow across the sector. Those organisations that maintain a disciplined focus on cash flow, invest in forecasting and engage early with lenders and stakeholders are best positioned to navigate the current cycle.
For further guidance on any issues raised in this article, please contact Paul Smith.
