How to Do Accounting for Your Construction Business?
Construction accounting is complex and different from standard accounting. It doesn’t work on the buy and sell model. Instead, it has a lot of moving parts and projects that last for more than one year. It is tricky to determine how much, when, and who will get paid or how much and when tax is due.
That’s why specialist consulting accounting comes in place. The various rules and regulations introduced by the UK government even make it more complicated. Thus, maintaining proper control over the finances is essential for the growth and stability of the construction work.
What is construction accounting?
Construction accounting is different from standard accounting. Unlike standard accounting principles, contractor business has a fixed pricing method and overhead expenses.
In the construction business, there are many more variables involved at stake. The location, materials, and work change from project to project. People often contracted or subcontractors to work on single or multiple projects. Overhead costs can also vary equipment moves between sites, and account for general costs like insurance and project management.
In construction accounting, each project has separate activity and allot cost to it. The cost allocation depends on the type of accounting method you follow cash or accrual basis of accounting.
What are the accounting regulations for construction?
The UK government has several schemes and regulations in place so that construction businesses report taxes correctly. There are several modifications done to the accounting requirements throughout the years to minimize tax evasion.
Construction Industry Scheme (CIS).
The Construction Industry Scheme is a scheme introduced by the HMRC that provides guidelines regarding the payment to subcontractors. According to the CIS scheme, a fixed percentage is deducted from the subcontract pay and sent to HMRC for tax purposes as income tax and contribution to national insurance.
Domestic VAT reverse change.
It is the new way of reporting VAT to the UK Government introduced in 2021. Previously, the supplier accounted for and reported VAT on their sales, but according to the new rule, the contractor (buyer) needs to report the VAT, not the subcontractor. Businesses registered for the CIS scheme are required to follow the domestic reverse change scheme.
The Invoice must state “Domestic reverse change” and also include the VAT amount the customers need to account for. It also includes the subcontractor’s CIS deduction if applicable.
A robust professional team for your construction business.
We at Meru Accounting have a specialized accounting team for a construction business. Our dedicated professionals can assist in structuring business, cash flow, smooth operation, tax planning, and increase the profitability of your business. We ensure each party of the construction business such as builders, developers, contractors, and sub-contractors meets the new and existing regulations to stay compliant and keep growing.
Accounting software partners.
We have an hourly rate system that includes full accounting support for the smooth running of your construction business.
Our cloud accounting software Xero, QuickBooks Online, MYOB, Sage, etc., makes it easier for you to stay on top of your accounting records, bookkeeping, and payroll.
We provide 24×7 support and fast-around response to our clients.
Contact us now to simplify your accounting for the construction business.
