How Construction Companies Can Save on Taxes in 2025
Construction companies and contractors face unique tax challenges, but understanding tax-saving opportunities, VAT schemes, CIS regulations, and allowable expense claims can significantly reduce tax liabilities. Whether you’re a principal contractor or a subcontractor, this guide will help you navigate tax reliefs, deductions, and schemes available in the UK construction sector.
1. Understanding the Construction Industry Scheme (CIS)
What is CIS?
The Construction Industry Scheme (CIS) regulates tax payments between contractors and subcontractors to prevent tax evasion in the construction industry. Under CIS:
-
Contractors deduct tax from subcontractors’ payments and pass it to HMRC.
-
Subcontractors receive net payments, with deductions counted as advance tax payments.
Tax-Saving Tips for CIS Contractors and Subcontractors:
✅ Register for CIS – Unregistered subcontractors face a higher tax deduction (30%) instead of the standard 20%. ✅ Claim CIS tax refunds – Subcontractors may reclaim overpaid tax via self-assessment. ✅ Offset CIS deductions – Limited company subcontractors can offset deductions against Corporation Tax and PAYE.
Example:
-
A subcontractor earning £50,000 under CIS with £10,000 tax deducted may reclaim overpaid tax if business expenses lower taxable profits.
2. VAT Schemes for Construction Businesses
Choosing the Right VAT Scheme
Construction companies can optimize VAT payments by selecting the most beneficial VAT scheme.
VAT Schemes Available:
-
Standard VAT Scheme (20%) – Traditional VAT system where businesses charge and reclaim VAT on goods/services.
-
VAT Flat Rate Scheme (9.5% for construction) – Simpler for small businesses, reducing administrative work.
-
VAT Domestic Reverse Charge (DRC) – Requires VAT to be reported by the contractor, not the subcontractor, reducing fraud risks.
Tax-Saving Tips:
✅ Use the VAT Flat Rate Scheme if turnover is below £150,000.
✅ Reclaim VAT on materials, tools, and vehicles used for business purposes.
✅ Account for Reverse Charge VAT correctly to avoid compliance penalties.
Example:
-
A construction company with £100,000 VAT-taxable turnover under the Flat Rate Scheme (9.5%) saves £10,500 annually compared to the standard VAT scheme.
3. Maximizing Expense Claims for Construction Companies
Claiming all allowable expenses reduces taxable profits and lowers tax bills.
Common Allowable Expenses:
-
Materials & Tools – Costs of bricks, cement, timber, machinery, and equipment.
-
Vehicle & Fuel Costs – Company vans, fuel, insurance, and mileage (45p per mile up to 10,000 miles).
-
Work Clothing & PPE – High-visibility jackets, helmets, safety boots.
-
Office & Admin Costs – Rent, internet, phone bills, software (e.g., QuickBooks, project management tools).
-
Professional Fees – Accountant, solicitor, or CIS registration costs.
Tax-Saving Tips:
✅ Use capital allowances – Claim 100% first-year relief on machinery and equipment under the Annual Investment Allowance (AIA). ✅ Claim mileage allowance – Instead of actual fuel costs, 45p per mile for the first 10,000 miles is tax-deductible. ✅ Write off bad debts – Construction businesses can claim tax relief on unpaid invoices to reduce taxable income.
Example:
-
A company purchases £20,000 worth of machinery under AIA, reducing taxable profit by £20,000.
4. Corporation Tax Relief for Limited Companies
Lowering Corporation Tax
If operating as a limited company, construction businesses must pay Corporation Tax on profits but can reduce tax liability by:
-
Claiming R&D tax credits for innovative projects.
-
Offsetting business expenses and bad debts.
-
Using pension contributions to lower taxable income.
Example:
-
A construction company making £100,000 profit claims £10,000 in allowable expenses and R&D tax credits, lowering its taxable income to £90,000.
5. Tax Considerations for International Contractors
For UK-based contractors working abroad or international firms operating in the UK, tax liabilities vary based on:
-
Residency status – UK residents pay tax on worldwide income.
-
Double Taxation Agreements (DTAs) – Avoid paying tax twice in different countries.
-
VAT on overseas contracts – Construction work outside the UK may have different VAT rules.
Tax-Saving Tips:
✅ Apply for DTA relief to reduce tax exposure in multiple jurisdictions.
✅ Use tax-efficient payment structures when subcontracting internationally.
✅ Check VAT obligations before invoicing foreign clients.
6. How Acumen Can Help Construction Businesses
Acumen Accountants and Tax Advisers specialize in construction industry taxation, helping contractors, subcontractors, and construction firms maximize tax efficiency.
Our Services Include:
✅ CIS tax refunds & compliance
✅ VAT schemes selection & compliance
✅ Expense optimization & capital allowances
✅ Corporation tax planning & R&D tax credits
✅ International tax advisory for construction firms
Final Thoughts
For tailored tax-saving strategies and financial planning in the construction sector for the 2025 tax year, trust Acumen Accountants and Tax Advisers. Our experts can help you navigate CIS, VAT, and expense claims to ensure full compliance while minimizing tax liabilities.
Construction companies can save thousands in taxes by optimizing CIS compliance, VAT schemes, expense claims, and Corporation Tax reliefs. Ensuring proper tax planning and compliance prevents penalties and enhances financial efficiency.
For expert construction tax and accounting services, contact Acumen Accountants and Tax Advisers today.
📞 07534473220
🌐 www.acumenagc.com
✉ info@acumenagc.com
🏢 37th Floor, 1 Canada Square, London E14 5DY
📅 Book Online Meeting Here
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Always consult a qualified accountant or tax professional before making financial decisions.
