NICs rise has added pressure to the UK construction sector

The recent hike in April 2025 to National Insurance Contributions (NICs) is sending ripples through the UK construction sector, compounding financial pressures already facing construction firms amid inflationary costs and a tightening labour market. 

From April 2025, employer NICs rose from 13.8% to 15%, whilst the threshold for contributions dropped to £5,000.

For those in the industry, the implications are clear: increased NICs could accelerate distress signals, particularly among SMEs and labour-intensive contractors.

SMEs at the Sharp End

SMEs, which are estimated to make up the majority of the UK construction sector, are particularly vulnerable. It can be a struggle to absorb the cost hike, even with the Employment Allowance raised to £10,500. For SMEs already grappling with late payments, material inflation, and regulatory compliance, the NIC increase could be the final straw.

Insolvency Risk: A Legal and Commercial Concern 

Increased tender prices, depending on project type, as well as the NIC hike, is likely to render some developments unviable, particularly in high density housing and infrastructure. 

Construction firms need to be aware of cash flow deterioration linked to rising payroll costs and as well as delays in recruitment and training, exacerbating the skills shortage. A focus on early signs of covenant breaches in financing is also required. 

Early intervention is key, and construction firms should be encouraged to reassess cost structures, explore workforce flexibility, and engage proactively with lenders and stakeholders.

“The rise in National Insurance contributions is adding pressure to already fragile balance sheets in the construction sector. For many SMEs, this is accelerating cash flow issues and bringing forward restructuring conversations.”
— Eniko Vella, Solicitor, Irwin Mitchell LLP”