The state of UK construction business 2026: what the incorporation and insolvency data tells trade owners

Why this data matters to a trade business owner

Every year, tens of thousands of electricians, plumbers, builders and other tradespeople make one of the biggest financial decisions of their working lives: whether to incorporate. Every year, thousands more construction companies fail, leaving subcontractors unpaid and main contractors dealing with supply chain collapse. Neither of those trends is visible in the headline news about construction output or house-building starts. They are only visible in two specific datasets: Companies House incorporation records and the Insolvency Service company insolvency statistics.

Trade Tax Specialists has compiled both into proprietary research indexes, updated to July 2026, using public data released under the Open Government Licence.^[1][2] This article works through what both datasets show, and what the patterns mean for a CIS subcontractor or trade business owner making real decisions about structure, payment terms, and financial risk.

The full underlying datasets are available at our UK Construction Index and UK Construction Insolvency Index.

The scale of construction company formation

In 2025, 67,839 construction companies were incorporated in the UK across all construction SIC codes, according to Companies House data compiled in our UK Construction Index.^[1] That is the equivalent of roughly 1,305 new construction firms every week, or 185 every single working day.

The decade trend puts that number in context. In 2016, 53,567 construction companies were incorporated. By 2025 the annual total had risen to 67,839, an increase of 26.6% over nine years. The trajectory was not linear. A post-pandemic surge pushed the 2022 annual total to 79,314, the highest in the dataset, before a correction brought volumes back toward the 2019 baseline of 67,998 by 2025.

The trailing twelve months to June 2026, using the most recent settled data, shows 67,938 new construction companies on a rolling basis, consistent with the 2025 full-year figure and suggesting the market has stabilised after the post-pandemic correction.

Which trades are incorporating most

Not all trades incorporate at the same rate. The UK Construction Index tracks eight specialist trade segments separately, using the SIC codes that most directly correspond to how individual tradespeople register their companies with Companies House. The 2025 figures by trade are as follows:^[1]

• Electricians (SIC 43210, electrical installation): 7,507 new companies in 2025, the highest of any specialist trade segment
• Plumbers (SIC 43220, plumbing, heat and air-conditioning installation): 7,001 new companies in 2025, the second highest
• Painters and decorators (SIC 43341, painting): 3,241 new companies
• Joiners and carpenters (SIC 43320, joinery installation): 2,826 new companies
• Flooring contractors (SIC 43330, floor and wall covering): 1,718 new companies
• Plasterers (SIC 43310, plastering): 1,489 new companies
• Groundworkers (SIC 43120, site preparation): 742 new companies
• Demolition contractors (SIC 43110, demolition): 368 new companies

Electricians and plumbers together account for 14,508 new companies, over one in five of all 67,839 construction incorporations in 2025. That concentration is not accidental. Both trades are heavily represented in the CIS subcontractor population, both routinely work for multiple contractors across the year, and both involve relatively high-value labour elements, which makes the CIS deduction rate (20% of the labour element for a registered subcontractor, 30% for an unregistered one) a meaningful cash-flow issue that incorporation can help manage.

Domestic builders (SIC 41202, construction of domestic buildings) sit outside these specialist segments but produced 16,527 new companies in 2025 on their own, the highest count of any single SIC code in the dataset. That category captures a wide range of general building activity, from small extensions to residential development, and the volume reflects the breadth of the code as much as any single trade trend.

The March spike: why the tax calendar drives company formation

One of the clearest signals in the monthly incorporation data is a consistent spike every March, immediately before the 6 April start of the new tax year. Across the full 2016 to 2025 record, March averages 6,643 incorporations against an overall monthly mean of 5,790, running 14.7% above the average and higher than any other month. The effect is intensifying: in 2025, March produced 6,686 incorporations against a 2025 monthly average of 5,653, some 18% above, the highest of any month that year.

The pattern repeats across the dataset. March 2026, though provisional and subject to Companies House indexing lag, recorded 7,205 new construction companies, again substantially above the monthly trend. March 2023 produced 8,027, March 2022 produced 7,875, and March 2021 produced 7,920. December consistently shows the opposite: the lowest volumes of any month, reflecting both the end-of-year slowdown in working activity and the absence of any tax deadline in the immediate future.^[1]

For a CIS subcontractor, the timing logic is straightforward. A new limited company incorporated before 6 April begins the tax year with the corporate structure in place. That matters for three specific reasons under CIS.

First, refund timing. A limited company that suffers CIS deductions on its income offsets them against its own PAYE and CIS liabilities every month by submitting a monthly Employer Payment Summary (EPS) to HMRC. A sole trader cannot do this: they carry the over-deducted amounts throughout the year and recover them through a Self Assessment return after 5 April. The difference in cash flow can be significant if the deductions are large. Incorporating before 6 April means the company can start offsetting from the first month of the new year, rather than joining mid-year and carrying forward a partial year's deductions.

Second, gross payment status. A limited company can qualify for gross payment status (where no CIS is deducted at all) on a turnover test of either £30,000 per director or £100,000 in total, compared to a sole trader who needs £30,000 of net CIS turnover individually. A two-director firm that incorporates before 6 April starts building the 12-month compliance and turnover record needed to apply for gross payment status from the start of that tax year.

Third, the Making Tax Digital timetable. Sole traders with gross income above £50,000 have been within MTD for Income Tax from April 2026, with the threshold dropping to £30,000 from April 2027. The threshold is measured on gross income before CIS deductions, not on the net amount banked. A subcontractor with £60,000 gross billings who receives £48,000 after 20% CIS is assessed on the £60,000 figure. Incorporating removes the MTD for Income Tax obligation entirely, since limited companies file Corporation Tax returns instead.

The result is that a well-advised CIS subcontractor who decides to incorporate will typically aim to do so in the weeks running up to 5 April, which is exactly what the March spike reflects. For more on the structural decision, see our detailed analysis of CIS sole trader versus limited company.

Construction insolvency: a decade of rising risk

The incorporation data shows a sector with strong formation volumes. The insolvency data shows the other side of that picture.

According to the Trade Tax Specialists UK Construction Insolvency Index, compiled from Insolvency Service record-level data,^[2] the trailing twelve months to May 2026 recorded 4,038 construction company insolvencies across England, Wales and Scotland. The full-year 2025 total was 4,188. In 2016, the annual total was 2,793. The decade increase of 49.9% is not a rounding error: it represents an additional 1,395 construction company failures per year compared to a decade ago.

The trajectory within that period is important. Insolvencies fell sharply during the pandemic years. The 2020 annual total was 2,262, reflecting the combined effect of court closures (which slowed compulsory liquidations), government support schemes (CJRS, bounce-back loans, CBILS), and HMRC's temporary suspension of winding-up petitions. The 2021 total was similarly suppressed at 2,789. Those interventions deferred rather than prevented failures. When the support was withdrawn, insolvencies surged: 4,389 in 2022 and 4,616 in 2023, both the highest annual totals in the dataset. 2024 moderated slightly to 4,282. The peak single month across the entire dataset was May 2023, at 489 insolvencies, a month that coincided with the final settlement of many pandemic-era debts falling due simultaneously.

The procedure breakdown: what type of failure this is

The type of insolvency matters as much as the number. The Insolvency Service data breaks each case by procedure, and the split reveals the nature of the stress in the sector.

In 2025, creditors voluntary liquidations (CVLs) accounted for 3,119 of the 4,188 total insolvencies, approximately 74.5%. A CVL is a procedure where the company's directors resolve to wind it up because it cannot pay its debts, without a court order. The creditors then appoint a liquidator to realise assets and distribute proceeds. In practice, the unsecured creditor recovery in construction CVLs is typically very low: the assets are often minimal (plant already financed, trade vehicles on lease, little in the way of cash or property), while the liabilities include unpaid subcontractors, HMRC, and trade suppliers.

Compulsory liquidations, where a creditor petitions the court to wind up the company, accounted for 837 cases in 2025. Administrations, where the company is placed under an insolvency practitioner's control with the possibility of rescue, were 165 cases. Administrations as a proportion of total insolvencies have declined from 208 in 2016 to 165 in 2025, partly because the administration procedure is more expensive and is primarily used for larger companies where there is a viable business to preserve. At the size of most CIS subcontract businesses, there is rarely enough value to make administration economical.

What insolvency data means for a CIS subcontractor

Construction insolvency figures are not abstract company-law statistics. For a CIS subcontractor they represent a direct measure of payment default risk across the supply chain.

When a main contractor enters a CVL, the CIS subcontractors who have completed work and submitted invoices but not yet been paid typically rank as unsecured creditors. Behind HMRC's preferential claims, secured lenders, and insolvency costs, unsecured creditors routinely receive pennies in the pound, and often nothing. The 4,038 trailing-twelve-month insolvencies in the dataset represent 4,038 instances of that risk materialising for the subcontractors and suppliers in those supply chains.

The CIS payment deduction statement a subcontractor receives from a main contractor is not a guarantee of payment. It is evidence that CIS was applied to a payment already made. The risk period is the gap between completing work and receiving payment. Standard payment terms in construction of 30 to 60 days create meaningful exposure windows, particularly with main contractors under financial stress.

Three structural responses are available to a subcontractor who wants to reduce that exposure. The first is to diversify the contractor base, so no single contractor accounts for a large share of turnover. The second is to use shorter payment terms where possible, and to issue CIS payment and deduction statements promptly to maintain a clear record of what is owed. The third is to monitor financial health signals in major contractors: late Companies House filings, county court judgments, and HMRC enforcement actions are often visible before a formal insolvency appointment.

Gross payment status interacts with contractor insolvency in a specific way. If a main contractor who has been paying a subcontractor without CIS deduction (because the subcontractor holds gross payment status) enters administration or CVL, any unpaid invoices are a direct cash loss with no CIS deduction already held by HMRC to offset it. A subcontractor on 20% deduction rate at least has an HMRC credit building up. This is one of the less-discussed risk dimensions of gross payment status, which is otherwise clearly beneficial for cash flow. For more on how GPS works and the 2026 rule changes, see our guide to gross payment status.

Formation and failure together: what the combined picture shows

Reading the two datasets together, the pattern in UK construction is one of high formation rates alongside persistently elevated failure rates. In 2025, 67,839 new companies were formed and 4,188 failed. That implies roughly one insolvency for every 16 formations, a ratio that has narrowed from one in 19 in 2016 (53,567 formations against 2,793 insolvencies).

The electrician and plumber segments that dominate formation volumes are less visible in the insolvency data, partly because SIC-level insolvency data is not broken down to the same trade-segment granularity and partly because sole traders (who are not limited companies) cannot appear in the insolvency statistics at all. The insolvency dataset captures company failures, not sole trader financial distress, which takes the form of personal insolvency (individual voluntary arrangements, debt relief orders, bankruptcy). That means the 4,038 trailing-twelve-month insolvency figure is the floor of financial failure in the sector, not the ceiling.

For trade business owners, the combined picture suggests two simultaneous realities. The sector continues to attract new entrants at a very high rate, particularly in electrical and plumbing trades, many of them timing incorporation around the tax year for CIS-specific reasons. At the same time, the failure rate for established businesses has increased substantially over a decade, concentrated in larger building and civil engineering firms where the contract values are higher and the payment terms longer. A CIS subcontractor working as a specialist trade in the supply chain below a main contractor sits at the intersection of both trends: entering through a wave of incorporation activity, exposed to the default risk of the main contractor tier above them.

What the data implies for structure and compliance decisions

The March incorporation spike tells its own story about what drives structural decisions in construction. Tradespeople are not incorporating at random: they are timing the decision to the tax year, which means they are thinking about CIS deductions, refund mechanics, and the gross payment status application window. That is a rational response to the way the CIS operates.

For a sole trader deciding whether to incorporate, the tax arithmetic for 2026/27 is less decisive than it first appears. At a modest profit level, the corporation tax saving is partially or fully offset by employer National Insurance at 15% on salary above the £5,000 secondary threshold and by the dividend tax rates of 10.75% (basic), 35.75% (higher), and 39.35% (additional) when profits are extracted. The company only clearly outperforms the sole trader on tax where profits are higher and where some of the profit can be left in the company rather than drawn out immediately.

The stronger case for incorporation in CIS is the cash-flow argument, not the headline tax rate. The monthly EPS offset means a CIS limited company gets its money back in real time rather than once a year. For a subcontractor with 20% deducted from all their labour billings, that is potentially a significant working-capital improvement, particularly against the backdrop of a sector where main contractor insolvency risk is elevated.

The CIS refund process, and whether you access it as a sole trader (through Self Assessment) or as a company (through the EPS), is one of the most practically significant aspects of the scheme. If you are currently a sole trader and are carrying large CIS deductions through the year, that is the calculation worth running before the next 5 April deadline. Our guide to CIS for electricians and CIS for plumbers cover the trade-specific picture for the two highest-volume incorporating trades in the dataset.

Sources

1. UK Construction Index. Trade Tax Specialists. Data compiled from Companies House Advanced Search API under the Open Government Licence v3.0. Generated 2026-07-20. Available at /research/uk-construction-index. Underlying source: Companies House, Crown copyright, Open Government Licence v3.0.
2. UK Construction Insolvency Index. Trade Tax Specialists. Data compiled from The Insolvency Service, Company Insolvency Statistics, record-level data for England, Wales and Scotland, release covering to May 2026, published 2026-06-19, retrieved 2026-07-20. Available at /research/uk-construction-insolvency-index. Underlying source: The Insolvency Service, Crown copyright, Open Government Licence v3.0.