Three “Easy” Tax‑Saving Tips Construction Directors Should Treat with Caution
Running a construction company in and around London means juggling tight margins, erratic payment schedules and ever‑rising material costs. It’s no wonder social feeds are flooded with “quick tax wins” promising to shave thousands off your Corporation Tax bill.
But as any good site manager will tell you, simple shortcuts often hide expensive snags.
Below we unpack three popular tax‑saving tactics, why they can work, and the hidden costs that could undermine your cash flow, credit rating and growth plans if you follow them blindly.
1. Buy Plant or Equipment Before Year‑End to Claim Capital Allowances
The promise
Accelerate a planned purchase—say, a new excavator or set of scaffolding—and you can deduct 100 % of the cost via the Annual Investment Allowance (AIA), trimming this year’s taxable profit.
The hidden snag
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Immediate cash impact: Corporation Tax isn’t payable until nine months after year‑end, but paying your supplier is usually “due on delivery.” If your working capital is already tight, that outlay can cripple cash flow in peak contracting season.
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Asset utilisation risk: Equipment that sits idle earns nothing. Without a confirmed pipeline of projects, the “saving” is just locked‑up capital.
Take‑away for contractors – Run a 12‑month cash‑flow forecast before signing the purchase order. If liquidity looks thin, explore short‑term hire or financing instead.
2. Pay a Lump‑Sum Pension Contribution for Directors
The promise
Employer contributions are deductible expenses and free of National Insurance—an elegant way to extract value from the company tax‑efficiently.
The hidden snag
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Working‑capital squeeze: Cash paid into a pension can’t buy materials, secure bulk‑order discounts or cover wage runs. In the construction sector, where debtor days average 45+, that liquidity buffer often means the difference between meeting and missing payroll.
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Long lock‑in: You typically can’t access the funds until age 55+ (rising to 57 from 2028). That’s fine if the business is flush; dangerous if you need to plug a gap caused by a late certificate payment.
Take‑away for contractors – Balance pension funding against your pipeline’s cash‑conversion cycle. A staged contribution plan can deliver the tax benefit without starving the business.
3. Delay Invoicing Until After Year‑End
The promise
Push invoices into next year; current‑year revenue drops; Corporation Tax falls.
The hidden snag
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Delayed cash: Lower turnover today means less money to pay subcontractors and suppliers—potentially incurring interest or losing early‑payment discounts.
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Compliance risk: Under UK GAAP, revenue from work in progress (WIP) must be recognised when the work is done, not when the invoice is raised. If HMRC spots deliberate cut‑off manipulation, expect an enquiry and potential penalties.
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Credit‑rating damage: Smaller reported profits can hurt your Experian score, slicing supplier credit limits just when material prices spike.
Take‑away for contractors – Only defer invoices if there’s a commercial reason (e.g., contractual milestones), and make sure WIP is properly recognised in your management accounts.
Tax Planning ≠ Cash‑Flow Planning
Reducing tax is good; building a resilient, cash‑positive construction business is better. Every tactic above can be valuable when folded into a wider financial strategy that also addresses:
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13‑week rolling cash‑flow forecasts
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Project‑level profitability tracking
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Funding lines for plant and material purchases
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Director remuneration mix (salary, dividends, benefits)
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Exit and succession planning
Common Questions Contractors Ask Us
Q1. Can I claim the Super‑Deduction or Full Expensing on plant?
The original Super‑Deduction ended 31 March 2023, but 100 % “Full Expensing” on qualifying plant continues. Check whether your assets meet the criteria.
Q2. Are salary sacrifice pension schemes worth it for site staff?
Often yes—workers save National Insurance and you cut Employer’s NI—if payroll software (e.g., Xero Payroll) and employment contracts are set up correctly.
Q3. How do R&D tax credits interact with capital allowances?
Certain construction techniques (e.g., modular methods) may qualify. Coordinate claims carefully to avoid double‑counting costs.
Next Steps
If your accountant’s advice stops at “spend more to save tax,” book a complimentary 30‑minute discovery call here We’ll model how each decision affects cash today and tax tomorrow – so you can keep projects moving and margins intact.
Call us on 01245 801611 or visit www.thomasemlyn.co.uk to schedule.
Internal Linking Suggestions
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Link “capital allowances” to a pillar page on Construction Capital Allowances.
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Link “cash‑flow forecast” to your Cash‑Flow Management service page.
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Link “Virtual Finance Director” to the VFD product page.
