Domestic Reverse Charge, effective since October 2019, requires the customer receiving a specified service to pay VAT due on the value of that work directly to HMRC, not the service provider. The customer can claim this payment back, however, this legislation has implications for construction companies.

The CIS (Construction Industry Scheme) sets out how your business must pay self-employed workers and make deductions towards their tax and NIC contributions. It is particularly complicated where there is a contractor and subcontractor relationship. CIS requires monthly reporting and a detailed breakdown of deductions and the eligibility of subcontractors to receive payments in certain ways.

Work in Progress (WIP) is one of the more complex areas of accounting. It represents the value of work done but not billed. The value of WIP is often recognised in numerous different ways, although there are strict regulatory rules involved in the process. A Company’s cash flow is also critically linked to WIP, and the invoicing of costs incurred

Cash flow. Fee billing and stage billing affect cash flow and are often tied to WIP for Construction firms. Construction is a complicated industry and cashflow is often put under pressure, due to complications arising with projects and delayed payments. Firms often face these difficult situations, which are compounded by the fact they still have to pay for labour and materials, perhaps long before they get paid by the client.

Another accounting challenge for construction companies is the management of fixed assets. As a construction firm, you’ll have high value machinery and on-site equipment as well as general assets such as vans and computers.

And looking ahead, construction firms need to plan for possible disruption in the availability of skilled labour. An ageing workforce, fewer younger people entering the industry and the effects of Brexit could see construction firms having to adopt new technologies to stay competitive.

Construction Services Industry

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