Why construction accounts are different
A building firm rarely gets paid in neat monthly amounts. Jobs run across several months, customers pay in stages, and a main contractor may hold back a retention until the snagging is signed off. Materials are bought before the job is invoiced. All of this makes a simple bank balance a poor guide to whether the business is making money.
Fulham has a steady stream of loft conversions, basement digs, kitchen extensions and full refurbishments of Victorian terraces, plus larger residential schemes around Sands End and Imperial Wharf. Firms working on these jobs often have a lot of money tied up in work that is half finished. Your accounts need to show that properly.
Work in progress, retentions and stage payments
At the year end we look at every job that is still running. Work in progress is the value of work you have done but not yet invoiced. If it is left out, your profit looks lower than it really is, which can cause trouble if HMRC later looks at the figures. If it is overstated, you pay tax on profit you have not earned.
Retentions are treated the same way. Money held back by a main contractor is still income you have earned, even if it will not arrive for a year. We keep a simple list of retentions by job so nothing is forgotten and you can chase what is owed when the release date comes round.
What is included
- Year end accounts for limited companies and partnerships
- Corporation tax returns for building companies
- CIS registration and monthly contractor returns
- Recovering CIS deductions suffered by your company
- VAT returns with correct domestic reverse charge treatment
- Work in progress and retention schedules by job
- Capital allowances on vans, plant and equipment
- Payroll for site staff and directors
Your CIS duties as a contractor
The Construction Industry Scheme, or CIS, is the HMRC system for paying subcontractors in construction. If your firm pays subcontractors, you are a contractor under CIS. You must register, check each subcontractor with HMRC before you pay them, deduct tax from the labour part of their invoice and send a return every month.
The deduction is 20% for registered subcontractors and 30% for those who are not registered, unless HMRC has given them gross payment status. Monthly returns are due by the 19th. Many building firms are also subcontractors themselves, so they suffer deductions on their own income. For a limited company, those deductions can be set against what it owes HMRC for PAYE, and we make sure that happens rather than letting the money sit unclaimed.
We can take on the monthly CIS work as part of your package. Our separate CIS returns page explains the monthly process in more detail.
The VAT domestic reverse charge
Since 1/3/2021, many construction services between VAT registered businesses fall under the domestic reverse charge. In plain terms, the subcontractor does not charge VAT on their invoice. The customer works out the VAT and declares it on their own VAT return instead.
It applies when the work is reported under CIS and the customer is not the end user. A homeowner in Parsons Green having a new bathroom fitted is not affected, so normal VAT still applies to that invoice. A developer buying in your services to sell flats in Chelsea may be an end user, and should tell you so in writing.
Getting this wrong is common. We see subcontractors charging VAT when they should not, and main contractors claiming back VAT they were never charged. We check each type of invoice you send and receive, and set up your software so the reverse charge is recorded correctly.
Vans, plant and tools
Vans, diggers, scaffolding and power tools are usually the biggest purchases a building firm makes. Most of these qualify for capital allowances, which reduce your taxable profit. The treatment depends on what was bought, whether it was bought or leased, and whether it is a van or a car. We look at each purchase and claim the allowance that fits.
Fuel, insurance and repairs need clear records too, especially where a van is also used for personal trips. If a director takes a company van home and uses it for more than insignificant private journeys, a benefit in kind charge can arise, and it needs reporting. We check how each vehicle is really used so the right treatment is applied from the start, rather than corrected after an HMRC check.
How we work with building firms
Most of our construction clients send us their records monthly or quarterly. We reconcile the bank, process CIS statements, check reverse charge invoices and keep a running list of jobs, retentions and work in progress. At the year end, the accounts are then mostly a matter of review rather than a scramble.
For limited companies, accounts are due at Companies House 9 months after the year end, and corporation tax must be paid 9 months and 1 day after. We agree a timetable with you so those dates are met. Fees are fixed and agreed before any work starts, after a free review of your records.
Who this suits
- Building companies that pay subcontractors on site
- Renovation and extension firms working on Fulham homes
- Main contractors on residential developments
- Groundwork, basement and structural firms
- Construction businesses moving from sole trader to limited company
Common questions
Do I need a specialist accountant for a construction company?
You do not have to use one, but construction has rules that general accountants sometimes miss, such as CIS, the VAT reverse charge and retentions. An accountant who handles these every month is less likely to make costly mistakes.
Does the VAT reverse charge apply to work on private homes?
No. If the customer is a homeowner and the end user of the work, you charge VAT in the normal way if you are VAT registered. The reverse charge is for supplies between VAT registered businesses in the construction chain.
How do I get back CIS tax deducted from my limited company?
A limited company sets CIS deductions it has suffered against the PAYE and National Insurance it owes HMRC each month. Any amount left over at the end of the tax year can be reclaimed. We handle these claims as part of your payroll and CIS work.
What is work in progress in building accounts?
It is the value of work carried out on jobs that are not yet invoiced at your year end. Including it gives a true picture of profit for the year. We work it out job by job with you.
Should my building business be a limited company?
It depends on your profit, how you want to take money out and the contracts you bid for. Some main contractors prefer working with companies. We can look at your figures and explain the tax difference before you decide.
Can you deal with my CIS returns as well as my accounts?
Yes. Many building firms ask us to handle the monthly CIS returns, payroll and VAT alongside the year end accounts, so everything is joined up and checked against the same records.
Do you work with builders outside Fulham?
Yes. We act for construction firms across South West and West London, including Putney, Hammersmith, Wandsworth and Battersea. Everything can be handled remotely if that suits you better.