Choose specialist construction accountants who will help you plan and grow your business
What is construction accounting?
The construction industry is very different to traditional accounting. Depending on whether you are a main contractor or sub-contractor (subbie) will have an impact on your reporting requirements.
Why is it different from accounting for other industries?
CIS is the main difference for construction businesses. CIS stands for Construction Industry Scheme.
If you are the main contractor, you need to ensure you deduct CIS tax from your subbies, at a rate of 20% or 30%. When you engage a new subbie you need to obtain their UTR and NI number and approve them with HMRC. If HMRC approves the subbie then 20% is deducted from their labour costs, if they are not approved then the contractor should apply the emergency rate of CIS which is 30%.
As the main contractor, you need to issue CIS statements on a monthly basis to your subbies, so that the subbie has a record of the CIS paid over (on their behalf) to HMRC. The subbie will then declare the CIS deduction on their end of year personal tax return. This is a legal requirement to provide monthly statements and can result in a fine. However, in practice this can often be overlooked.
If you suffer CIS and have a PAYE scheme then CIS is reported through the PAYE scheme.
CIS is only calculated on the labour element of an invoice, i.e. any materials included on an invoice should not form the calculation for CIS.
Construction accountants understand that VAT is another consideration. There are different rates of VAT depending on the work involved. For example, new builds attract zero-rated sales and therefore businesses only working on new builds would typically receive VAT refunds.
What will specialist construction accountants do for my business?
They will ensure you are paying the correct amount of CIS and VAT and they will also ensure you are deducting appropriate expenses. They will also ensure you are compliant in terms of completing and submitting the appropriate paperwork for HMRC in a timely fashion.
They will understand the cash flow complexities and can assist with delivering sophisticated cash flow forecasts. They will also understand the industry terminology, the impact of stage payments, planning applications, building regulations etc and the impact of retentions.
True construction accountants will be able to discuss financing option and when potentially needing bridging loans etc as well as being able to help out with forecasts and mapping out scenarios.
Should I use cash or accruals accounting?
This will depend on your cash flow requirements. Cash accounting means you pay and deduct the VAT as and when you pay and receive invoices. The accruals basis, this is where the VAT is calculated on the receipt or issue of an invoice.
What types of businesses do you deal with in the construction sector?
There is a wide range of construction businesses ranging from ‘being on the tools’, labour only, main contractors to service-based businesses, such as architect and surveyors.
Can you help me with the bookkeeping?
At The Smart Accountants we have several options when considering your bookkeeping requirements:
- Utilise technology, photos of receipts, bank feeds, online accounting platforms such as Xero.
- Enter purchases and sales into a system and then outsource the reconciliation of control accounts.
- Fully outsource, simply hand over (scan / physically drop) paperwork and leave it to the bookkeeping team.
- With all options, we can assist in advanced reporting so you know where you are with your business.
What about dealing with the Construction Industry Scheme (CIS)?
If you come within the scheme then you need to file a CIS return on a monthly basis.
This can be tricky when you in the middle of the chain, for example, you are working for the main contractor, but also engage subbies. Therefore you are potentially being stopped CIS from your contractor and stopping CIS from your subbies. This creates two CIS accounts and is often the downfall of construction businesses who do not control the liability or refund position.
Can you help me manage my projects better?
Typically businesses will manage projects manually, whether that be via an Excel spreadsheet or even worse, in their heads.
Construction accountants will use technology apps such as WorkflowMax and SimPro, these will help manage staff, timesheets, track the profitability of projects. Apps are individual products that integrate with your cloud accounting software, which provides a seamless and integrated software package.
What about dealing with payroll where there is a high turnover of staff?
Most cloud accounting systems have a built-in payroll module, which you could manage yourself.
An alternative is to outsource your payroll, so that the headache of dealing with starters, leavers, reimbursed expenses etc are taken care of.
Do you help with tax planning?
Once you have up to date information, this will allow you to concentrate on business and tax planning.
We can be involved in your business as much or as little as you need us to be.
Some clients opt for a pre year-end meeting, this allows the time for a review of the financial information to date and provides an opportunity to establish and more importantly implement tax planning.