Construction projects often involve long payment cycles, fluctuating costs and multiple subcontractors. These factors can affect cashflow and make reliable bookkeeping essential. We have provided accounting and bookkeeping for construction companies for many years and understand the importance of careful accounting during the 2025/26 tax year. Strong record-keeping helps businesses remain compliant with HMRC rules, including the Construction Industry Scheme (CIS), and stay on top of VAT requirements. It also supports decision-making about upcoming projects and helps forecast potential issues before they escalate.
Why 2025/26 tax rules matter
Tax regulations can shift from one year to the next. The 2025/26 personal allowance for individuals remains at £12,570, and the standard VAT rate stays at 20%. Corporation tax is set at 25% for companies with profits above £250,000 (lower profit levels may qualify for a reduced rate, but many medium-sized construction businesses still find themselves paying the top rate). It is wise to review government updates on a regular basis and monitor any statements from HMRC that affect the construction sector. Official guidance on CIS, including registration and deductions, is on the HMRC website. Companies House also updates its requirements for annual accounts, so it is worth visiting their website too.
Cashflow management
Strong cashflow keeps businesses moving. Construction work often demands buying materials in bulk and paying wages for teams before funds arrive from clients. Slow settlements can stretch budgets further. Accurate invoicing is one way to maintain balance. Issue invoices promptly, specify payment dates and follow up if payments are late.
Some construction firms set aside a small reserve for emergency costs. This can cushion the impact when a client delays a payment or when material prices spike. Even a modest buffer can prevent disruptions and support ongoing operations.
CIS compliance
CIS reduces tax evasion in the construction sector by making contractors deduct money from subcontractor payments. This deduction goes to HMRC directly and counts towards the subcontractor’s tax or national insurance. Care is needed when calculating what to withhold. Rates can vary depending on whether the subcontractor is registered for CIS and their payment status. A mismatch or missed detail can lead to penalties from HMRC, along with potential cashflow issues for subcontractors.
There is also an administrative side to CIS, including monthly returns and record-keeping for all deductions. Using dedicated accounting software, or working closely with an adviser, saves time and reduces errors.
Project-based accounting
Large construction projects often span many months and have different costs at each stage. Splitting your bookkeeping by project can help track profitability. Materials, labour and overheads can be assigned to specific projects. This approach highlights areas that could be eating into profits. It also shows which projects deliver the best returns.
Monitoring each step of a project means spotting where expenses are higher than estimated. If cost overruns threaten your bottom line, it may be possible to renegotiate terms or adjust workflows. Project-based accounting can also help with forward planning, where data from completed projects guides future pricing.
Handling subcontractor payments
Managing subcontractors well fosters trust and keeps projects on schedule. Fast, accurate payments reduce the likelihood of disputes and ensure your team works efficiently. CIS rules apply here, so deductions must be made if the subcontractor is part of the scheme.
Keeping track of multiple subcontractors, each with different rates and statuses, can be challenging. Practical steps include using software designed for the construction sector and setting up a clear system for subcontractor onboarding and verification. This includes collecting unique tax reference numbers, proof of registration and verifying any special CIS instructions. We can offer support if you are uncertain about the right steps.
VAT considerations
VAT can create confusion when you have multiple projects at different stages. The construction sector has specific VAT rules for new builds, renovations and other types of work. Certain projects qualify for reduced or zero VAT rates. Others must charge 20%. Getting it wrong can mean paying too much or too little VAT. That can draw HMRC’s attention and lead to penalties or unexpected costs later.
A structured approach to VAT, backed by proper bookkeeping for construction companies, makes your returns more accurate. Double-check the VAT status of each project and keep records that back up the rate you have charged. Keep track of your invoicing dates, especially if you use the cash accounting scheme for VAT.
Common challenges
Long payment cycles are a frequent issue. If a major client delays an invoice for several weeks, it can affect wages and supplier costs. Rising materials costs also add pressure. Some construction businesses look for volume discounts by buying in bulk, but that ties up cash and requires secure storage. Skilled labour shortages may mean higher wages than first planned.
These challenges can hamper daily operations unless your accounts are kept up to date and you have sight of future inflows and outflows. Early identification of potential gaps in funding allows time to look for additional resources or short-term finance. Good bookkeeping data is the foundation for these decisions.
Practical tips for financial stability
- Update your records daily if possible. This keeps data accurate and supports better business decisions.
- Monitor your payable and receivable schedules each week. Quick follow-up on late invoices can prevent larger issues.
- Review CIS deductions monthly. This makes sure your returns to HMRC match the amounts withheld from subcontractors.
- Manage VAT rates carefully. Identify which projects qualify for reduced or zero VAT and maintain separate records.
- Use cloud-based accounting tools with project-tracking features. This can streamline data entry and reporting.
- Talk to a specialist if you are unclear about any aspect of construction bookkeeping. Expert guidance can save money and time.
How we can help with bookkeeping for construction companies
Smith Butler provides tailored bookkeeping for construction companies. Our team understands the tax deadlines and compliance rules affecting this sector. We offer guidance on CIS, VAT, payroll and everything in between. We know your records must be accurate and accessible. This helps you stay compliant, manage costs and focus on your core work. We are here to support your construction business with trusted advice and prompt answers to your questions.
Talk to us
If you would like to discuss our services in more detail, visit Smith Butler’s construction accounting page to see how we can help. We work hard to support firms across the sector. Let us remove the burden of day-to-day bookkeeping so you can concentrate on building successful projects.
Interested in speaking with us for practical, targeted advice? Get in touch now to protect your cashflow and keep your accounting processes and bookkeeping for construction companies in order.