The construction industry offers numerous tax relief opportunities that many businesses fail to claim. Understanding these can significantly reduce your tax bill and improve profitability.
Construction Industry Scheme (CIS)
If you work in construction, you’re likely familiar with CIS. But are you optimising your position?
For Contractors
- Verify subcontractors to apply correct deduction rates
- Submit monthly returns on time to avoid penalties
- Keep accurate records of all payments and deductions
For Subcontractors
- Apply for gross payment status if eligible
- Reclaim CIS deductions through your tax return
- Maintain detailed records of all jobs and payments
Capital Allowances: Your Biggest Opportunity
Capital allowances let you deduct the cost of business assets from your taxable profits.
Annual Investment Allowance (AIA)
Currently £1 million per year, allowing you to claim:
- Plant and machinery
- Commercial vehicles
- Tools and equipment
- Site equipment and temporary structures
Example: Purchase a £40,000 excavator and claim 100% tax relief in year one, saving £7,600 in corporation tax (at 19%).
Super-Deduction (Check Current Status)
While the super-deduction has ended, stay informed about replacement schemes for capital investment incentives.
Allowable Business Expenses
Don’t miss these common deductions:
Vehicle Expenses
- Commercial vehicles: 100% of running costs
- Vans: Full expenses including personal use
- Cars: Percentage based on business use
- Electric vehicles: Additional benefits
Tools and Equipment
- Small tools (under capital allowance threshold)
- Safety equipment and PPE
- Specialist equipment hire
Site Costs
- Temporary site facilities
- Skip hire and waste disposal
- Scaffolding hire
- Plant hire and equipment rental
Professional Costs
- Architect and engineer fees
- Quantity surveyor costs
- Planning application fees
- Legal fees for contracts
Training and Development
- Skills training for employees
- Health and safety courses
- Professional qualifications
- Apprenticeship schemes
R&D Tax Credits for Construction
Many construction businesses qualify for R&D tax credits without realising it. You might be eligible if you’re:
- Developing new construction methods
- Creating innovative building solutions
- Improving sustainability or efficiency
- Overcoming technical challenges
Potential benefit: Up to 33% of qualifying costs back from HMRC.
VAT in Construction
Reduced Rate VAT (5%)
Available for:
- Residential conversions
- Renovations of empty properties (2+ years)
- Certain energy-saving installations
Zero-Rated VAT (0%)
Applicable to:
- New build residential properties
- Certain charity buildings
- Approved disabled adaptations
Reverse Charge VAT
Applies to most construction services between VAT-registered businesses since March 2021. Ensure you’re handling this correctly.
Structure Your Business Tax-Efficiently
Limited Company vs Sole Trader
Consider:
- Tax rates and allowances
- Liability protection
- Pension contributions
- Extraction of profits
Employing Family Members
Legitimately employ family members to:
- Split income tax efficiently
- Utilise their personal allowances
- Build their pension pots
Cash Flow and Tax Planning
Payment Timing
Strategic timing of:
- Large equipment purchases
- Income recognition
- Expense payments
Can optimise your tax position across financial years.
VAT Cash Accounting
Consider VAT cash accounting scheme if:
- Annual turnover under £1.35 million
- Improves cash flow
- Pay VAT only when customers pay you
Common Mistakes to Avoid
- Not keeping receipts - Digital photos work; use apps
- Missing CIS deadline - Set up automated reminders
- Incorrect VAT treatment - Seek specialist advice
- Failing to claim capital allowances - Maximise year-one relief
- Poor record keeping - Costs you money at tax time
Industry-Specific Advice Matters
Construction accounting requires specialist knowledge. Generic accountants may miss valuable reliefs and allowances specific to your industry.
How We Help Construction Businesses
At Clean Accounts, we specialise in construction industry accounting:
- CIS compliance and returns
- Capital allowances maximisation
- VAT planning and returns
- R&D tax credit claims
- Cash flow management
- Real-time financial reporting
Take Action Today
Are you claiming all the reliefs you’re entitled to? Many construction businesses overpay tax simply because they don’t know what’s available.
Book a free tax review and discover how much you could be saving.
Tax rules change regularly. This article provides general information only. For advice specific to your circumstances, please contact us.