Construction Tax and CIS for UK builders.
CIS deductions, Gross Payment Status, Reverse Charge VAT and Making Tax Digital. Construction has its own set of tax rules, and getting any of them wrong costs money quickly.
CIS at source
Monthly returns, subcontractor verification, and deduction rates of 0%, 20%, or 30%. The return has to match the payment records.
Jump to section 02Gross Payment Status
Gross Payment Status removes the 20% deduction, but late filings or payments can put it at risk.
Jump to section 03Reverse Charge VAT
Construction supplies covered by the reverse charge shift VAT accounting to the customer, which changes the cash position for subcontractors.
Jump to section 04Retentions & allowances
Retentions affect when profit is recognised. Plant, machinery and commercial property costs need checking for capital allowances.
Jump to sectionWhy construction accounting is different
The construction industry operates under the Construction Industry Scheme, a set of HMRC rules that requires contractors to deduct tax at source from subcontractor payments. Subcontractors with Gross Payment Status avoid these deductions, but GPS comes with strict compliance obligations. A single missed filing or late payment can trigger GPS revocation and an immediate 20% cashflow hit.
On top of CIS, the Domestic Reverse Charge shifts VAT accounting responsibility from supplier to customer on qualifying construction services. And MTD's gross turnover threshold catches nearly every builder, because materials billed to clients count towards the £50,000 threshold.
Key areas for construction businesses
- CIS compliance: Monthly returns, verification of subcontractors, and correct deduction rates (0%, 20%, or 30%).
- Gross Payment Status: Meeting and maintaining the turnover, compliance, and business tests that protect your GPS.
- Capital allowances: Plant, machinery, and commercial property expenditure can be offset against profits, often in the year of purchase.
- Retention accounting: Tracking and reporting retentions correctly matters for accurate profit reporting in construction.
What to keep clean in the records
Construction records need more detail than a normal sales ledger. Each subcontractor should be verified before payment, deductions should agree to the monthly Construction Industry Scheme (CIS) return, and invoices should show whether the Domestic Reverse Charge applies.
Retentions, materials recharged to customers, plant purchases and fuel costs also need to be separated properly. If they are left until year-end, the accounts can show the wrong profit and the tax planning window is usually gone.
More construction guides
Construction Industry Scheme Guide
A guide to the Construction Industry Scheme for contractors and subcontractors, including deductions, monthly returns and Gross Payment Status.
GuideDomestic Reverse Charge VAT for Construction
A practical guide to the VAT Domestic Reverse Charge for construction services. Understand when it applies, how to invoice correctly, and the End User exemption.
Related services
Review CIS, Reverse Charge VAT and Gross Payment Status.
We work through your CIS deductions, Domestic Reverse Charge invoicing and Gross Payment Status compliance, then come back with what to fix before the next HMRC review.
Review your CIS and reverse-charge position