HAMPSHIRE’S construction sector faces a high risk of business closures as government support introduced during the Covid crisis is wound down, it is claimed.

Around 10 per cent of constructors and subcontractors could fail or close voluntarily by the end of next year, according to accountancy firm Azets.

The furlough scheme is due to end on September 30 at the same tie as restrictions on winding-up processes and the suspension of wrongful trading rules.

Duncan Swift, restructuring partner at Azets in Southampton and a specialist on the construction sector, said the end of these measures would cause serious problems for the sector. The move will coincide with the introduction of new VAT and IR35 tax rules.

Mr Swift said sub-contractors are expected to be disproportionately affected with many businesses and sub-contractors unable to continue trading.

He said: “The VAT reverse charge system introduced on March 1 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. The end of the moratorium and withdrawal of the furlough scheme will almost certainly result in main contractors re-focusing their cash flow priorities, potentially to the detriment of sub-contractors and those impacted most by the recent VAT and IR35 changes.

“Unfortunately, the outlook for the construction sector and sub-contractors in particular is very uncertain, and we are likely to see a significant number of smaller businesses close and sub-contractors leaving the industry. Wider issues such as raw material and labour supply shortages, rising costs, reduced margins and ongoing trading uncertainties arising from the pandemic are well documented and simply add to the scale of the pending problem.

“Regrettably, we could see around 10 per cent of construction businesses and sub-contractors either failing or closing voluntarily by the end of 2022.

“Cashflow planning is going to be vital to survival along with keeping a close eye on margins. Funding will be available to those businesses that can present a credible business plan. Directors and business owners should establish at an early stage their funding requirements and then ensure they have a strategy in place to ensure they have the requisite funding in place.”