Effective tax planning can make a significant difference to your bottom line. You know that running a construction company isn’t just about bricks and mortar; it’s also about keeping a keen eye on the books. Let’s explore some tax-saving strategies tailored for the construction industry.

Capital allowances: Maximising your investments

Investing in new equipment or machinery? You could be eligible for capital allowances, allowing you to deduct a portion of these expenses from your taxable profits. Here’s what you need to know.

• Annual investment allowance (AIA): Businesses can claim up to £1m annually on qualifying plant and machinery expenditures. This means you can deduct the full cost of these assets from your profits before tax.
• Full expensing: Introduced to encourage business investment, full expensing allows companies to immediately deduct 100% of the cost of qualifying main rate plant and machinery. This incentive is available for expenditures from 1 April 2023 to 31 March 2026.

These allowances can reduce your taxable profits, leading to substantial tax savings.

The Construction Industry Scheme (CIS): Navigating the essentials

The CIS is designed to combat tax evasion in the construction sector by regulating payments from contractors to subcontractors. Here’s how to stay on top of it.

• Registration: Both contractors and subcontractors must register with the scheme. Failure to do so can result in higher deductions and potential penalties.
• Deductions: Contractors are required to deduct money from subcontractors’ payments and pass it to HMRC. These deductions are advance payments towards the subcontractor’s tax and national insurance.
• Record-keeping: It is crucial to maintain accurate records of all payments, deductions and subcontractor details. This not only ensures compliance but also simplifies the process during HMRC inspections.

Staying compliant with CIS not only keeps the taxman happy but also helps in avoiding unexpected bills.

Research and development (R&D) tax credits: Innovate and save

Innovation is at the heart of the construction industry, from developing new building materials to implementing sustainable construction methods. The government offers R&D tax credits to encourage such advancements.

• Eligibility: If your company is involved in projects that seek to achieve an advance in science or technology, you may qualify. This includes developing new products or processes or appreciably improving existing ones.
• Benefits: Small or medium-sized enterprises (SMEs) can claim a deduction of 130% of their qualifying R&D expenditure in addition to the normal 100% deduction, for a total 230% deduction. Large companies can benefit from the research and development expenditure credit (RDEC), which offers a taxable credit of 13% of qualifying R&D expenditure.

By claiming R&D tax credits, you can significantly reduce your corporation tax bill or even receive a cash refund.

Apprenticeship levy: Investing in the future

The apprenticeship levy is a government initiative to fund apprenticeships. Here’s how it affects tax planning for your construction business.

• Who pays? Employers with an annual pay bill over £3m must pay the levy, set at 0.5% of the pay bill.
• Using the funds: The funds collected can be accessed through the apprenticeship service and must be used for apprenticeship training and assessment.
• Benefits: Investing in apprenticeships can address skill shortages and bring fresh talent into your business, potentially leading to increased productivity and innovation.

By effectively utilising the apprenticeship levy, you comply with regulations and invest in your company’s future workforce.

Stay updated: The tax landscape is ever-changing

Tax laws and reliefs are subject to change. Recent discussions around corporation tax have highlighted potential increases, which could impact your tax planning.

To navigate these changes consider the following.

• Regular reviews: Schedule periodic reviews of your tax strategies to ensure they align with current laws.
• Professional advice: Engage with tax professionals who specialise in the construction industry. They can provide tailored advice and keep you informed about legislative changes.
• Continuous learning: Attend industry seminars and workshops to stay abreast of the latest tax incentives and reliefs available to your business.

By staying informed and proactive, you can adapt to changes and make informed decisions that benefit your company’s financial health.

Get help with tax planning

Effective tax planning is more than just a compliance exercise – it’s a strategic tool that can lead to significant savings and provide a competitive edge. You can optimise your tax planning position by focusing on capital allowances, CIS compliance, R&D tax credits and apprenticeship funding.

At JTP Accountancy, we specialise in helping construction companies navigate the intricacies of tax planning. Our team stays informed on the latest developments to provide accurate and relevant advice.

Let’s work together to build a robust financial foundation for your business.