To an outsider, it may appear that the accounting for businesses in the construction industry should be fairly straight forward. However, it could be argued that this industry is actually one of the hardest in which to get both the compliance and the accounting correct. There are a number of pitfalls to be aware of, two of which require particular attention:
Construction Industry Scheme
In terms of compliance pitfalls, the Construction Industry Scheme (CIS) is by far the most burdensome, especially if the entity in question is a contractor. A contractor must report to HMRC on a monthly basis giving details of all subcontractors he has paid in a payroll month. He / she is also responsible for verifying with HMRC whether each subcontractor is able to receive payment gross, or if the contractor has to make deductions from each payment it makes, and forward that on to HMRC. Any deductions which the contractor is due to hand over to HMRC must be done every month.
From an accounting point of view, one of the more complex areas is WIP. WIP is the value of work at a given point in time that an entity has completed, but not yet invoiced. For example, if the entity has only one project on, worth £10,000 in total, and is halfway through it, simplistically the WIP would be £5,000. However, accounting for WIP is not always this straight forward and there are often some quite complex calculations to be undertaken to arrive at an accurate WIP figure, and indeed match the costs accordingly. This is why using experienced construction industry accountants is so important.
Our construction industry specialist accountants can deal with these areas and will be able to help navigate these issues and provide advice on many other matters; from the best way to purchase or hire equipment, to what costs are allowable and how to minimise tax liabilities.
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