Accountant for Builders: UK Construction Tax Guide (2026/27)

A good accountant for builders earns their keep on one rule above all others — the Construction Industry Scheme (CIS). If you run a building business in the UK, this is the tax rule that hits you hardest: contractors must deduct 20% from a registered subcontractor's labour (30% if you're unverified, 0% with Gross Payment Status) and pay it to HMRC. That deduction is an advance on your tax — you reclaim or offset it later. The rest of construction accounting is about claiming the right expenses, handling the VAT reverse charge correctly and choosing the right business structure.

This guide walks builders and construction firms — sole traders and limited companies — through CIS, allowable expenses, VAT, structure and record-keeping, with a worked subcontractor example using only current 2026/27 figures. Whether you do your own books or want a specialist handling the lot, this is the practical shape of accounting for builders.

What is the Construction Industry Scheme (CIS)?

CIS is HMRC's system for collecting tax from people working in construction. Under it, a contractor deducts money from a subcontractor's payment and sends it to HMRC as an advance payment towards that subcontractor's Income Tax and National Insurance (or Corporation Tax if they trade through a company).

Contractor vs subcontractor — which are you?

• Contractor: you pay other subcontractors to do construction work. You must register as a contractor before your first payment, verify each subcontractor with HMRC, make the right deduction, and file monthly returns.
• Subcontractor: you do construction work for a contractor. You should register so you're deducted at 20% rather than 30%.
• Both: many builders are both — they take work from a main contractor and pay their own labourers. You register for both roles.

CIS covers most construction work: building, alterations, repairs, demolition, site clearance, installing systems for heating, lighting and power. Pure professional work like architecture and surveying, or carpet fitting and scaffolding hire alone, can fall outside it — a specialist accountant will confirm what's in scope.

20% vs 30% vs Gross Payment Status — how the deduction works

The deduction rate depends on the subcontractor's status when the contractor verifies them:

Crucially, CIS is deducted only from the labour element — never from materials, plant hire passed on, or VAT. So if your invoice is £2,000 labour plus £800 materials, the deduction is calculated on the £2,000 only. Getting that split right on every invoice is where a lot of builders lose money, which is why we cover it in detail in our guide to CIS materials vs labour.

Should you apply for Gross Payment Status?

GPS lets you be paid in full with no CIS deducted, which transforms cash flow — you pay your tax through your normal return instead. You must pass a turnover test, a compliance test and a business test. It's worth doing once you're established; see the CIS gross payment status turnover test and our step-by-step on how to apply for CIS gross payment status.

Monthly CIS returns and deadlines

If you're a contractor, you file a CIS return every month, due by the 19th of the month following the tax month (a tax month runs to the 5th). The return lists every subcontractor you paid and the deductions you made, and you must give each subcontractor a payment and deduction statement. Late returns trigger automatic penalties starting at £100, so this is a deadline you never miss.

How do subcontractors reclaim CIS deductions?

The deductions taken from you are not lost — they're money already paid towards your tax bill.

• Sole traders / partnerships: you declare your full income on your Self Assessment return and show the CIS already deducted. It's offset against your Income Tax and Class 4 NIC; any excess is refunded.
• Limited companies: you reclaim CIS suffered through your payroll, by reporting it on the monthly Employer Payment Summary (EPS). It's set against the PAYE and CIS you owe; any surplus at year end is refunded or carried forward. We explain this in claiming a CIS refund for a limited company via the EPS.

Worked example: subcontractor with 20% CIS deducted

Meet Dan, a self-employed plasterer registered for CIS. In 2026/27 he invoices a main contractor as follows over the year:

• Labour invoiced: £45,000
• Materials invoiced (excluded from CIS): £8,000

The contractor deducts 20% CIS on the labour only:

• CIS deducted: 20% × £45,000 = £9,000 sent to HMRC on Dan's behalf.
• Dan is paid: £45,000 − £9,000 + £8,000 materials = £44,000 in cash.

Now his Self Assessment. His total turnover is £53,000. Say his allowable expenses (van, tools, fuel, materials he bought, insurance) come to £13,000, giving taxable profit of £40,000.

Because CIS was deducted at 20% on his gross labour — before any expenses were taken into account — Dan overpaid, and HMRC refunds the difference. This is why so many subcontractors are owed money each year and why filing promptly after 5 April gets that cash back fast. You can sanity-check your own numbers with our self-employed tax calculator.

What can builders claim as expenses?

If you're a sole trader and your gross income is under £1,000 you can use the trading allowance and skip detailed expenses. Above that, claim everything that's "wholly and exclusively" for the business:

• Tools, plant and equipment — drills, mixers, scaffolding, larger plant (often via capital allowances).
• Protective clothing and PPE — hi-vis, steel-toe boots, hard hats, gloves, branded workwear.
• Van and vehicle costs — either actual running costs or HMRC mileage. AMAP mileage (per HMRC) is 55p/mile for the first 10,000 business miles and 25p/mile thereafter (24p/mile for motorbikes).
• Materials — bricks, timber, cement, fixings bought for jobs.
• Fuel — if you're claiming actual vehicle costs rather than mileage.
• Use of home — for quoting, admin and record-keeping, via the flat rate or a fair proportion of bills.
• Training — CSCS cards, ticket renewals and courses that maintain your existing trade.
• Other — public liability insurance, accountancy fees, phone, waste disposal, congestion charges.

For a fuller breakdown see our allowable expenses for sole traders list, and use the mileage calculator to compare claiming mileage vs actual van costs.

The VAT domestic reverse charge for construction

You must register for VAT once your taxable turnover passes £90,000 in any rolling 12 months (or you expect to in the next 30 days). Once registered, construction throws in a twist: the domestic reverse charge.

For most CIS-covered building services between VAT-registered businesses, the supplier does not charge VAT. Instead, the customer (the contractor receiving the work) accounts for the VAT on their own return — charging and reclaiming it in the same place. So as a subcontractor invoicing a VAT-registered contractor, you state on the invoice that the reverse charge applies and show no VAT to collect. The reverse charge does not apply when the customer is the final end-user or consumer (for example a homeowner) — then you charge VAT normally.

This change hits cash flow, because you no longer hold that VAT between collecting it and paying it over. Our VAT services team sets up your invoicing and software so the reverse charge is applied automatically.

Sole trader vs limited company for a building firm

There's no universal answer — it depends on profit, how much you reinvest and whether you want to draw everything personally.

Many growing builders incorporate once profits are comfortably into higher-rate territory, taking a mix of salary and dividends (dividend allowance £500; rates 10.75% / 35.75% / 39.35% in 2026/27). But the CIS refund mechanics are messier for companies, so the decision needs to weigh tax saving against admin. Our guide on CIS vs PAYE employment status is a useful companion, and our corporation tax services handle the company side end to end.

Record-keeping and Making Tax Digital

Construction generates a blizzard of paperwork: subcontractor statements, materials receipts, fuel, plant hire and CIS deductions. You must keep records that back up every figure on your return. Making Tax Digital (MTD) is steadily requiring digital record-keeping and software-based filing, so the days of a shoebox of receipts are over. Good cloud bookkeeping means your CIS deductions, reverse-charge VAT and expenses are captured as you go — see our bookkeeping services.

How Zmartly helps builders and construction firms

As specialist accountants for builders, we live in this scheme. We register you for CIS, verify your subcontractors, file your monthly returns by the 19th, reclaim every CIS deduction you're owed, apply the VAT reverse charge correctly, and tell you straight whether sole trader or limited company saves you the most. You get a fixed monthly fee, real-time figures and a builders accountant who actually understands retentions, day rates and how site work is paid. See how we support contractors, or read our deep-dive on construction payroll and CIS.

Book a free call with Zmartly and we'll review your CIS position and find the money you're owed.

Frequently asked questions

Why do builders need a specialist accountant?

Accounting for builders carries rules most general accountants rarely touch: monthly CIS returns, the 20%/30%/gross labour deduction split, the VAT domestic reverse charge and reclaiming CIS suffered. A specialist accountant for builders files your returns on time, recovers every deduction you're owed and gets the labour-versus-materials split right, which is where a lot of construction firms quietly lose money.

Do I pay CIS on materials?

No. CIS is deducted only from the labour element of a payment. Materials, plant hire passed on and VAT are excluded. So you must split labour and materials clearly on every invoice — if you don't, the contractor may deduct CIS on the whole amount.

How do I get my CIS deductions back?

Sole traders offset CIS against their Self Assessment tax and NIC, with any excess refunded after filing. Limited companies reclaim CIS suffered through the monthly Employer Payment Summary (EPS), set against PAYE owed, with any surplus refunded or carried forward at year end.

What is the VAT reverse charge for construction?

For most CIS work between VAT-registered businesses, the customer (the contractor receiving the service) accounts for the VAT instead of the supplier. The subcontractor shows no VAT to collect and states that the reverse charge applies. It does not apply when the customer is the end-user, such as a homeowner.

When must a builder register for VAT?

When your taxable turnover exceeds £90,000 in any rolling 12-month period, or you expect to exceed it in the next 30 days. You can register voluntarily below that, which sometimes helps if most of your customers are VAT-registered businesses.

Sources

• What is the Construction Industry Scheme (CIS) — GOV.UK
• What you must do as a CIS subcontractor — GOV.UK
• What you must do as a CIS contractor — GOV.UK
• VAT domestic reverse charge for building and construction services — GOV.UK
• Expenses if you're self-employed — GOV.UK