A closer look at VAT, duties, and direct tax challenges within global and domestic supply chains, with actionable solutions for businesses navigating the complexities.
In today’s UK construction landscape, navigating the supply chain is more complex than ever. For firms involved in domestic contracts, understanding the financial, legal, and operational dynamics is essential to maintaining resilience and profitability.
Supply chain themes
Funding pressures and thin margins
Keep structures simple
Payment terms and retentions
Customs, VAT, and cross-border complexity
CBAM, EU Deforestation Regulation, and Export Readiness
Funding outlook
1. Funding pressures and thin margins
Construction margins are notoriously tight, and with material and wage inflation, funding the supply chain has become a strategic challenge and in this environment, cash is king. Banks, challenger banks, and asset-based lenders scrutinise not just the contractor, but the entire structure - especially when Special Purpose Vehicles (SPVs) or Joint Ventures (JVs) are involved. If the SPV lacks a credit rating, funding dries up quickly. Guarantees can help, but high interest rates mean some contractors earn more from cash at bank than from active projects - a wake-up call for the sector.
Construction margins are notoriously tight, and with material and wage inflation, funding the supply chain has become a strategic challenge...
2. Keep structures simple
Complex mosaics of SPVs and JVs can deter funders. Lenders want clarity on debtors, financials, and who ultimately holds the risk. Often, subcontractors bear the brunt, especially when the parent company is overseas. The bond market remains difficult, and funders are increasingly tracking money flow from the top down.
3. Payment terms and retentions
Legislation around payment terms and retentions is under scrutiny. Retentions held downstream remove vital cash from delivery, and pay-less or withholding notices contribute to delays. Waiting up to two years for profit is unsustainable. Government consultations on retention schemes are ongoing, but clarity is needed to protect working capital and ensure retention amounts don’t equate to the entire profit margin.
4. Customs, VAT, and cross-border complexity
Indirect taxes and customs tariffs are changing frequently. Contractors must understand the implications of importing equipment and materials—especially when ownership lies with overseas suppliers. Temporary import VAT relief is limited, and HMRC is increasing scrutinising claims, particularly around goods contractors don’t own. Cross-border contracts can trigger VAT obligations in other countries, and failure to comply can lead to inspections and penalties.
Managing indirect taxes efficiently within a supply chain can make or break the margins on a contract and significantly reduce pressure on cash flows. Understanding this at the outset of a contract and engaging with your tax team and advisors early is key to realising these benefits.
5. CBAM, EU Deforestation Regulation, and Export Readiness
New EU regulations like CBAM and the Deforestation Regulation are reshaping how UK firms export timber and other materials. Geolocation, origin tracking, and documentation are now mandatory, but many industries aren’t equipped to meet these standards. Awareness across the supply chain - from major manufacturers to niche suppliers - is critical.
6. Funding outlook
Despite tight credit conditions, there is a wall of funding available. With interest rates potentially easing, opportunities exist - but only for firms that present clear, simple structures and demonstrate robust compliance across financial and regulatory domains.
Despite tight credit conditions, there is a wall of funding available.
