Running a construction business in the UK comes with a range of compliance and legislation responsibilities. Whether you’re a contractor or a subcontractor, staying on top of tax schemes, VAT rules, health and safety regulations, and proper record-keeping is essential to avoid penalties and ensure smooth operations. Here’s what you need to know about compliance and legislation for construction companies.
The construction industry scheme
If you’re working in construction, you’re likely to be affected by the Construction Industry Scheme (CIS), the HMRC scheme designed to regulate payments from contractors to subcontractors and specifically to crack down on tax avoidance in an industry where cash is still important.
If you pay a subcontractor for some construction work, you must register for CIS and deduct a portion of their payment, which you will then pay to HMRC. That payment is, ultimately, the subcontractor’s income tax and national insurance contributions (NICs).
If the subcontractor themselves subcontracts out the work to someone else, they have to register and withhold payments as the CIS contractor. Subcontractors registered for CIS have 20% of their pay deducted, while unregistered subcontractors have 30% of their pay deducted.
Contractors must submit monthly CIS returns to HMRC, detailing all payments made and deductions taken. Failing to do so can result in penalties, so staying on top of these filings is crucial.
The VAT reverse charge
The VAT reverse charge for construction services shifts the responsibility of the supplier (the subcontractor) charging and collecting VAT to the customer (the contractor) to account for it in their VAT return. This means that the end-customer receiving construction services has to pay the VAT to HMRC instead of the supplier.
The rules apply to standard rate VAT or reduced-rate construction services provided by VAT-registered businesses. They don’t apply to the supply or zero-rated services, such as the construction of housing.
To stay compliant, contractors and subcontractors should ensure their invoices clearly state when the reverse charge applies and keep accurate VAT records related to all supplies and services. Furthermore, you should ask for the help of an accountant – the VAT reverse charge is a complex scheme, so don’t hesitate to seek advice when needed.
Health and safety requirements
The construction industry is one of the highest-risk sectors in the UK, making health and safety compliance a top priority for every business in the industry. Employers and contractors have legal duties under the Health and Safety at Work Act 1974 and the Construction (Design and Management) Regulations 2015 (CDM 2015) to ensure a safe working environment.
- Risk assessments and method statements (RAMS): Businesses must identify workplace hazards and outline control measures.
- Personal protective equipment (PPE): Workers must have the correct safety gear, such as helmets, gloves and high-visibility clothing.
- Site safety inductions: All workers should receive proper induction and training before starting work.
- Work at height regulations: Proper scaffolding, harnesses and edge protection must be used when working above ground.
- Welfare facilities: Work sites must provide toilets, handwashing facilities and rest areas for workers.
- Accident reporting: Serious injuries and fatalities must be reported to RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations).
Failing to comply with health and safety laws can result in severe penalties, including fines, project shutdowns and even imprisonment for serious breaches. Besides, it would be critical to ensure your workers are as safe and protected as possible, even if health and safety regulations didn’t exist.
Record-keeping requirements for construction businesses
Keeping accurate financial and operational records is essential for both compliance and legislation, and smooth business operations. Construction companies and subcontractors must maintain detailed records for tax, CIS, VAT, and health and safety compliance.
Key records to maintain include the following.
- CIS records: Payment details, deductions and CIS returns submitted to HMRC.
- Invoices and receipts: Clear records of income and expenses for tax reporting.
- VAT returns and reverse charge transactions: Documentation of VAT charged and accounted for under the reverse charge scheme.
- Payroll and employee records: PAYE and national insurance contributions for workers.
HMRC requires businesses to keep tax records for at least six years, so using accounting software or hiring a professional accountant can help stay organised and avoid compliance issues.
Compliance and legislation: Tax duties
In addition to CIS and VAT responsibilities, construction businesses must stay on top of their broader tax obligations.
If you operate as a limited company, you must pay corporation tax on your profits. The rate is currently 25% for profits over £250,000 and 19% for profits below £50,000, with a sliding scale in between. You must file corporation tax returns annually and payment is due nine months and one day after your company’s financial year ends.
For sole traders and partnerships, profits are taxed through self assessment, with income tax and national Insurance contributions due on earnings. Regardless of business structure, you must ensure your tax returns are filed on time and that you pay the correct amount to avoid penalties. Keeping accurate financial records is key to staying compliant and avoiding unexpected tax bills.
Closing thoughts on compliance and legislation
Staying compliant in the construction industry requires careful attention to tax schemes, VAT rules, health and safety regulations, and accurate record-keeping. With so many moving parts, having the right support can make all the difference in avoiding penalties and keeping your business running smoothly
If you need help navigating compliance and legislation for construction companies, get in touch with us. Let’s see how we can help you.