How the Construction Industry Scheme, compliance, tax, and other challenges affect construction businesses.
The construction industry is an important sector in the UK economy, often seen as a key indicator of financial stability and growth. With the government setting an ambitious target of 1.5 million new homes over the next five years, construction businesses are expected to see increased demand. However, alongside the opportunities, the industry continues to face a number of regulatory and financial challenges.
From managing cash flow on long-term projects to ensuring compliance with the Construction Industry Scheme (CIS) and Domestic Reverse Charge (DRC), construction businesses must meet their financial obligations. Without additional professional help, these requirements can become overwhelming and can lead to costly penalties.
Key Financial and Compliance Challenges in Construction
Construction business need to keep on top of day-to-day bookkeeping, annual accounts preparation, and tax returns, but they also need to consider:
- Construction Industry Scheme (CIS) Compliance: Businesses operating within CIS must submit monthly filings detailing payments made to subcontractors, tax deductions, and amounts received from contractors. Failing to comply can result in penalties.
- Domestic Reverse Charge (DRC) for VAT: VAT liability shifts from the supplier to the customer, meaning that many subcontractors no longer charge VAT on their invoices. Understanding when and how to apply DRC is critical in avoiding mistakes when reporting VAT.
- Making Tax Digital (MTD) Filing: VAT-registered businesses should already be complying with MTD for VAT, but MTD for Income Tax is coming into effect for self-employed individuals with income above £50,000 from April 2026. Find out more about this here.
- Recognising Income in Construction Contracts: Construction businesses must be able to identify income within a contract, particularly for projects that run over multiple financial years.
- Managing Cash Flow: Medium- and long-term projects require careful financial planning to ensure a smooth cash flow at all times.
- Rising Material Costs: Fluctuating material prices can have an impact on profits – making it vital to build some flexibility into quotes and contracts.
- Financing Major Contracts: To secure finance for larger projects you will need up to date management accounts and projections.
How we can help.
The Construction Industry Scheme (CIS) rules are complex and determining whether a project falls within its scope is not always straightforward. Mistakes can lead to unexpected financial penalties which can be costly. It is also important that you are VAT compliant under the Domestic Reverse Charge (DRC) as no businesses wants to find themselves in the position of over or underpaying their tax.
Having the support of an experienced accountant who understands financial and tax challenges of businesses within the construction industry can make all the difference. At bennettbrooks, we provide expert guidance to ensure your business remains compliant, maximises tax efficiencies, and is always aware of its financial position. Our teams help contractors, subcontractors and construction business owners with their compliance and tax obligations and help them plan for sustainable growth and the future of their business.
If you would like to speak to one of our specialists, please get in touch, they will be happy to help.
