Construction firms face £60,000 fines as another new levy lands

New rules hit builders twice as compliance costs pile up

October has delivered a double hit for Britain's small construction businesses. New Right-to-Work rules now extend checks to individual subcontractors as well as conventional employees, while England's new Building Safety Levy has added another potential cost to larger residential and student accommodation developments.

For a sector built around subcontracting, tight margins and workers moving rapidly between projects, neither change is insignificant. One increases the compliance risk of taking people onto site; the other potentially changes the economics of the projects providing those firms with work. Small builders, tradespeople and specialist subcontractors need to understand both.

Right-to-Work

For the first time, construction firms must check the legal working status of self‑employed workers, labour-only subcontractors, and non‑standard labour, and not just PAYE employees. This is a seismic shift for a sector where half the workforce is self‑employed and where Construction Industry Scheme labour moves quickly between sites.

You must confirm every worker is legally entitled to work in the UK and keep clear, auditable records about who did the check, when, with evidence the person on site is the same person cleared. The liability sits with the construction firms.

Main contractors can be penalised for illegal workers anywhere in the subcontract chain if safeguards aren’t in place. Digital checks alone aren’t enough; biometrics, site passes, attendance systems and regular ID checks are recommended.

Severe Penalties

You could face big fines per illegal worker which could be enough to force you out of business, mean bans on certain people being directors, and lead to up to five years in prison. For small firms, even one mistake could be existential.

More admin, more cost, more risk

Small firms must now run onboarding processes previously only expected of large contractors.

Tighter subcontracting rules

Expect main contractors to demand more paperwork, identity checks, contractual guarantees and compliance audits, which again all adds extra cost for small businesses.

Higher barriers to entry for casual labour

The days of “turn up and get on with the job” are over. This will slow down hiring and reduce flexibility, especially for micro firms relying on picking up workers at short notice.

Misclassification becomes dangerous

If someone is treated as self‑employed but isn’t, legally, liability moves up the chain, and small firms can be caught in the crossfire.

Compliance becomes a competitive advantage

Firms with clear processes already in place will win more work. Firms without them will be locked out.

Building Safety Levy

The new Building Safety Levy applies from 1st October 2026 to housing schemes of 10 or more homes and to student accommodation with more than 30 bedspaces. It will raise £3.4bn over 10 years to fund remediation of unsafe buildings.

Charges vary by location:

• Manchester: £284,000 for a 10,000 sq m scheme

• Birmingham: £292,000

• Tower Hamlets: £612,000

Brownfield sites get a 50% discount, and affordable housing and specialist accommodation are exempt. Projects submitted before 1 October are protected.

Fewer large projects coming to market

Developers are already struggling with high interest rates and material costs at the same time as weak buyer demand and planning delays. Now they’ve got to factor in another major cost. Some schemes to be paused, downsized, or cancelled meaning less work for the smaller contractors and sole-traders.

Pressure on subcontractor pricing

Developers will try to offset levy costs by squeezing margins, delaying payments, cutting scope and looking for cheaper labour. Again, the knock-on impact hits the small firms hardest.

More competition for fewer jobs

With fewer major schemes progressing, micro firms will compete harder for the jobs that are on offer in groundworks, tit‑out and specialist trades among others.

A shift to smaller developments

Projects under 10 homes escape the levy so we’re likely to see more small sites and small business developers which could mean more opportunities for micro contractors.

Brownfield discount

A 50% levy discount may push developers toward brownfield sites which are often ideal for small contractors with local knowledge.

Compliance Up, Pipeline Down

Small construction firms now face higher compliance burdens, admin costs, legal risk and project costs for clients. At the same time there’s likely to be a lower volume of large projects and so more competition for small projects. This is a tough combination but it’s not without opportunities. Small firms can still win.

Get “compliance‑ready”: firms with strong onboarding and RTW processes will be preferred suppliers.

Target sub‑10‑unit developments: they escape the levy and will grow in number.

Pivot to brownfield: developers will favour discounted sites.

Build relationships with smaller developers as they will drive the next wave of housing delivery.

Offer labour certainty: firms that can guarantee workers have the right-to-work will win more contracts.

Get Ahead of the Pack

The new Right‑to‑Work rules and Building Safety Levy hit small and micro construction businesses hard but firms that adapt quickly by tightening compliance, targeting smaller sites, and positioning themselves as reliable partners, can still thrive.

This is a moment for resilience, agility, and smart positioning. The firms that move early will be the ones still standing when the market stabilises.