Managing finances in the construction industry is no small task. As one of the most heavily taxed sectors, construction businesses must navigate a web of taxes: Corporation Tax, PAYE, National Insurance, CIS (both deductions and sufferings), VAT (with varying rates), and even personal taxes like income tax and dividend tax.
For construction business owners, Corporation Tax is a key area to master. Understanding how it works—and how to reduce your liability—can make a significant difference to your bottom line.
Book a discovery call here to see how we can help you.
What is Corporation Tax?
Corporation Tax is the tax your company pays on its profits. As of April 2023, the UK’s Corporation Tax rate is:
- 25% for businesses with profits exceeding £250,000.
- 19% for small businesses with profits of £50,000 or less.
- A tapered rate between 19% and 25% for businesses with profits between £50,000 and £250,000.
Profit vs. Taxable Profit
One common misconception is that your company pays tax on its “profit.” However, HMRC calculates taxable profit, which can differ significantly from your accounting profit.
Here’s why:
- Non-allowable expenses (like client entertainment) are added back to your profits.
- Tax reliefs and allowances, such as capital allowances for equipment, reduce your taxable profit.
Key Corporation Tax Reliefs for Construction Firms
Construction businesses have access to several tax reliefs that can reduce their Corporation Tax bill:
- Capital Allowances: Claim back costs for plant, machinery, and vehicles used in your business.
- Research & Development (R&D) Tax Credits: If your company invests in innovative processes or technologies, you may qualify for generous R&D relief.
- Annual Investment Allowance (AIA): Deduct the cost of certain assets in the year of purchase, up to the AIA limit.
- CIS Deductions: If you’re a contractor, CIS deductions can offset your Corporation Tax bill.
Why Does This Matter for Construction Firms?
Construction businesses often operate on tight margins. By optimizing your Corporation Tax liability, you can:
- Free up cash flow for new projects.
- Invest in better tools, equipment, or personnel.
- Reinvest in growth opportunities.
Common Challenges with Corporation Tax in Construction
- Cash Flow Crunches: Construction is a high-expense, low-margin industry, making it vital to plan ahead for tax payments.
- Complex VAT Rules: Navigating VAT rates (0%, 5%, 20%, or reverse charge) adds complexity to your accounting, which can impact Corporation Tax planning.
- Subcontractor Costs: Properly tracking subcontractor payments under CIS is crucial for accurate tax reporting.
How Accountants Help Construction Businesses Save Tax
Working with an accountant experienced in the construction industry can significantly ease your tax burden. They can:
- Identify and claim all applicable reliefs and allowances.
- Help plan for tax bills to avoid cash flow surprises.
- Ensure compliance with HMRC regulations, reducing the risk of penalties.
Why Thomas Emlyn Ltd is the Right Choice for Your Construction Business
At Thomas Emlyn Ltd, we specialise in helping construction businesses navigate their finances, accounting, and taxes. Our expert team understands the unique challenges of your industry, from Corporation Tax to CIS and VAT.
We’ll help you:
- Maximize your deductions and reliefs.
- Streamline your tax processes for compliance.
- Focus on growing your business while we handle the paperwork.
Check out our Virtual Finance Office and see how it can help take control of your finances, so you don’t have the day to day burden.
Book a discovery call here to see how we can help you.
