Running a construction business is hard graft – winning work, managing subcontractors, staying on top of cashflow and delivering quality on site. Adding regulation into the mix can feel like a full-time job in itself. This guide brings the key areas of compliance and legislation for construction companies into one place, so you can reduce risk, avoid penalties and keep projects moving. We focus on practical steps across the Construction Industry Scheme (CIS), VAT, health and safety, employment law and environmental duties – the areas that most often trip up busy small and medium-sized enterprises (SMEs).
Why does this matter? Aside from fines, lost tenders and reputational damage, weak compliance creates cost and delays that erode margin. The sector also faces headwinds and tight pricing, so efficient processes make a difference. For context, the Office for National Statistics (ONS) reported that UK construction output grew by 1.2% in Q2 2025 compared with Q1 2025 – welcome, but fragile growth that rewards firms who run a tight ship (ONS, 2025).
We work with builders, specialists and main contractors of all sizes. If you want support that is practical and tech-enabled, our team can help with sector-specific services including accountants for the construction industry.
The essentials: compliance and legislation for construction companies
Compliance in construction spans several regimes. Get these right first.
- Construction Industry Scheme (CIS): Register if you pay subcontractors, verify them before payment, make the correct deduction and file a monthly CIS return. HMRC sets deduction rates at 20% for registered subcontractors, 30% for unregistered and 0% for those with gross payment status (HMRC, 2025).
- VAT on construction: Check whether the domestic reverse charge applies between VAT-registered businesses for services within CIS. When it does, the customer accounts for VAT – you invoice net and state that reverse charge applies. Keep clear records so your VAT returns reconcile cleanly.
- Companies House duties: Keep filings up to date and watch the new identity verification rules rolling out – directors and people with significant control (PSCs) will need to verify, with a transition period for existing companies (Companies House, 2025).
CIS and VAT – where mistakes bite
CIS errors are common and costly. Simple controls help.
- Verification and onboarding: Build a standard process to verify every subcontractor before first payment, capture unique taxpayer reference (UTR), company and tax status, and set the correct deduction rate from day one.
- CIS returns: File the monthly return by the 19th of the month for the period ending on the 5th. Pay deductions on time to avoid interest and penalties.
- Statements of deduction: Issue monthly statements to subcontractors – they rely on these to claim credit on their own tax position.
- Gross payment status (GPS): If you aim for GPS, keep taxes, returns and VAT up to date. From April 2024, HMRC takes VAT compliance into account when granting or keeping GPS, and can cancel GPS if it suspects VAT or tax fraud (HMRC, 2023).
On VAT, errors often stem from treating every invoice the same. Train the team to spot reverse-charge scenarios, end-user declarations and mixed supplies. Use your software to flag reverse-charge jobs and automate wording on invoices. If you need help to register, choose the right scheme and file returns, see our VAT registration service.
Health and safety – CDM duties you cannot ignore
The Construction (Design and Management) Regulations 2015 (CDM) apply to all projects, domestic or commercial. Ther core points can keep you compliant.
- Client duties: Make sure clients understand their responsibilities – providing pre-construction information and allowing enough time and resources.
- Principal designer and principal contractor: If more than one contractor will work on the project, you must appoint a principal designer and a principal contractor in writing.
- Construction phase plan: Required on every project – proportionate to size and risk.
- Notifiable projects: Notify the HSE (F10) if a project lasts longer than 30 working days and has more than 20 workers on site at the same time, or exceeds 500 person-days.
- Competence and supervision: Keep evidence of skills, training and experience, and make sure supervision matches site risks.
Good CDM practice protects people and keeps jobs on track – and many clients will not let you start without proof.
Employment law and labour status – get the basics right
People-related issues lead to most disputes. Here’s how to avoid them.
- Right-to-work checks: Complete checks before work starts and keep secure copies.
- Written terms: Issue contracts or statements of terms on day one. For irregular-hours workers, use clear clauses on holiday accrual and pay, following the 2024 reforms that allow rolled-up holiday pay in specific cases.
- Status reviews: Distinguish between employees, workers and self-employed subcontractors. Status affects tax, holiday and rights – and errors can trigger back pay and tax liabilities (and threaten CIS GPS).
- Working time and pay: Track hours, rest breaks and minimum wage, including travel between sites where that counts as working time.
- Payroll discipline: RTI submissions on or before pay day, correct deductions, prompt P45/P60/P11D handling.
If you need a robust process, our team can run payroll and CIS together – see our payroll and CIS support on our website, including payroll year-end returns.
Environmental duties – waste, permits and evidence
Environmental compliance is now standard pre-qualification. Focus on the following.
- Duty of care for waste: Classify waste correctly, use licensed carriers, complete transfer notes for non-hazardous waste and keep them for two years. Keep hazardous consignment notes for three years.
- Site controls: Manage storage of fuels, dust and run-off. Have spill kits on site and record toolbox talks.
- Client and planning conditions: Many contracts require environmental plans and evidence – treat them as a deliverable, not an afterthought.
- Materials and product compliance: Keep documentation for timber, aggregates and product safety compliance where relevant.
Common risks and how to reduce them
A few smart habits cut most compliance risks.
- Job onboarding checklists: Use a template that covers CDM roles, Health and Safety Executive (HSE) notification, insurance, risk assessment method statement (RAMS), waste arrangements, VAT treatment and CIS setup.
- Verified supplier lists: Only buy from suppliers and subcontractors you have pre-checked for tax status, insurance and licences.
- Digital record-keeping: Store CIS verifications, statements, VAT evidence and health & safety (H&S) records in your accounting or document system – searchable, backed up and easy to share with clients or auditors.
- Monthly reviews: Reconcile CIS, VAT and payroll each month so issues do not roll forward.
- Training and refreshers: Short refreshers for site managers and accounts teams prevent drift from the process.
- Tender readiness: Keep standard documents – policies, insurance, accreditations and method statements – updated so you can bid fast.
Where the sector stands – and why discipline pays
Market conditions change fast. One reliable point remains: firms with tidy compliance and accurate records win more work and keep more profit. As noted above, output in Q2 2025 ticked up by 1.2% – but contractors still face margin pressure and tighter client checks. A single late CIS return or VAT error can block GPS, delay payments and damage cashflow. Build discipline into your weekly rhythm and let software do the heavy lifting where possible.
We can help you set up job-by-job controls in Xero or QuickBooks, automate CIS statements, and align VAT coding with reverse-charge rules. Our construction team works alongside your site managers, not against them – simple processes that fit the way you build.
Ready to make compliance work for you
Strong systems make compliance and legislation for construction companies a competitive advantage – fewer surprises, faster client approvals and steadier cashflow. If you would like a quick review of your CIS, VAT, H&S evidence and payroll processes, get in touch and we will map practical fixes within a week.
If you want ongoing support, we can run the numbers while you run the sites – from CIS and VAT to management accounts and tender pack financials. Start with a free conversation – chat to us today.