In this guide, we’ll show you clearly how to structure your construction business for optimal tax efficiency, explain popular structures, and give practical advice on making your business as profitable and tax-efficient as possible.
Construction businesses often overlook opportunities to structure their company more tax-efficiently—costing thousands in unnecessary tax bills every year.
Getting your business structure right can dramatically lower your tax burden, increase cash flow, and help protect your profits.
🏗️ Why Your Construction Business Structure Matters
The way your business is structured significantly impacts:
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Tax payable (Corporation Tax, Income Tax, VAT, National Insurance)
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Personal liability and risk protection
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Profit extraction strategies
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Flexibility for future growth or exit
Careful structuring can mean paying far less tax, leaving you more money to reinvest and grow.
✅ Best Tax-Efficient Structures for Construction Companies
Here are common, tax-efficient business structures that construction companies use effectively:
1. Limited Company (Ltd)
The most common and tax-efficient option for construction businesses in the UK.
Benefits:
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Lower corporation tax rates (19% currently)
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Ability to control income and dividends flexibly
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Limited liability protection (personal assets protected)
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Potential access to gross CIS status, improving cash flow
Tax Tips:
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Pay yourself a modest salary (reduces NIC)
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Take dividends from profits to save tax overall
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Reinvest profits in company growth to defer personal taxation
2. Holding Company Structure (Group Structure)
Useful for larger construction firms or those diversifying into multiple businesses or property holdings.
Benefits:
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Protects business assets by separating trading operations
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Allows tax-efficient profit extraction between subsidiaries
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Enables you to manage risk effectively across different business activities
Tax Tips:
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Shift profits efficiently between subsidiaries
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Manage VAT and Corporation Tax liabilities strategically
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Structure dividends from subsidiaries up to holding company efficiently
3. Partnerships or LLPs
Suitable for smaller or specialist construction operations with two or more owners.
Benefits:
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Simpler structure, no Corporation Tax (partners taxed personally)
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Flexible profit sharing arrangements between partners
Considerations:
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Less tax-efficient at higher profit levels (higher personal tax rates)
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Unlimited personal liability unless using an LLP
💡 Top Tips for Tax Efficiency in Your Construction Business
✅ 1. Optimise Your Salary and Dividend Mix
Taking a modest salary (just above NIC thresholds) and drawing dividends from your profits is typically the most tax-efficient strategy for directors.
✅ 2. Claim CIS Refunds and Ensure Correct Deductions
If you’re a subcontractor, regularly check your CIS deductions—many companies unknowingly overpay CIS tax. Claim refunds promptly if applicable.
✅ 3. Maximise Allowances and Reliefs
Make use of all available tax reliefs:
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Capital allowances on equipment or vehicles
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Annual Investment Allowance (AIA)
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R&D tax credits for construction innovations or problem-solving activities
✅ 4. Plan for VAT Efficiency
VAT Reverse Charge and standard VAT can significantly impact your cash flow. Plan carefully:
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Ensure you understand Reverse Charge VAT clearly
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Consider Flat Rate VAT if beneficial (typically smaller businesses)
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Optimise VAT reclaim opportunities, particularly on equipment purchases
⚠️ Common Mistakes to Avoid
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Paying unnecessarily high salaries (increases NIC payments)
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Not reclaiming CIS overpayments promptly
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Ignoring tax reliefs like capital allowances and R&D credits
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Incorrect VAT handling, especially with Reverse Charge VAT
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Poorly structured profit extraction methods
🧾 Example: Effective Structuring in Action
A client turning over £2.5M was previously paying high personal taxes through salary alone. We restructured their business into:
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A Limited Company with directors on low salaries plus dividends
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A holding company for property and equipment assets
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Optimised VAT management and CIS handling
Result: They saved over £60,000 annually in combined taxes and NIC contributions.
🛠️ Software Tools to Support Tax Efficiency
Using good accounting software helps track and improve tax efficiency:
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Xero / QuickBooks: for clear financial records and tax planning
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TaxCalc or FreeAgent: excellent for detailed tax forecasting
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BrightPay: helps handle CIS and payroll tax efficiently
👷♂️ When to Get Professional Advice
Tax structuring can become complex, especially as your construction business grows. Professional advice ensures compliance, maximises tax efficiency, and helps avoid costly mistakes.
Seek expert help if you’re considering:
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Changing your business structure
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Implementing new profit extraction methods
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Large equipment or asset purchases
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VAT registration or changes
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Succession planning or exit strategies
📞 Need Expert Advice to Improve Your Tax Efficiency?
At Thomas Emlyn Ltd, we specialise in helping construction businesses optimise their tax structure, maximise allowances, and manage CIS efficiently.
We’ll help you:
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Identify and implement the most tax-efficient business structure
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Optimise your income, dividends, and allowances
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Simplify and reduce your VAT and CIS liabilities
📞 Book a discovery call and start keeping more of your hard-earned profits.
📌 Final Thoughts
Structuring your construction business correctly is one of the most powerful ways to reduce your tax bill, improve cash flow, and enhance profitability.
Review your current structure carefully, seek professional advice, and ensure you’re not paying more tax than you need to.
