End of Tax Year Checklist for the Construction Industry

Introduction - Tax Year Checklist

For many construction and engineering businesses, the end of the tax year can feel like an uphill battle. Between CIS returns, VAT, payroll, and corporation tax, it’s easy to overlook key steps that could save you thousands. HMRC doesn’t wait for anyone, and mistakes at year-end often lead to penalties, missed reliefs, or cash flow strain.

At Jones Financial Accounts (JFA), we specialise in guiding SMEs through this busy period. The reality is simple: those who prepare early finish the year stronger. Those who leave it to the last minute risk paying more tax than they need to. In this blog, we’ll walk through the most important areas construction and engineering firms should review before 5 April with practical examples, eligibility rules, and common misconceptions.

1. Review Capital Allowances

What It Is

Capital allowances let you deduct the cost of assets (like machinery, vehicles, and equipment) from taxable profits. At year-end, reviewing your purchases is essential because you may be able to accelerate claims before the deadline. The Annual Investment Allowance (AIA) allows businesses to claim 100% relief on qualifying purchases up to £1m.

For construction firms, this can include diggers, scaffolding, office IT systems, and even safety equipment. Planning purchases before the year closes can significantly reduce corporation tax.

Eligibility

All businesses, limited companies, sole traders, and partnerships, can claim capital allowances, provided the assets are used for business purposes.

Example

A civil engineering company with £1.2m turnover buys £100,000 of new plant machinery in March. By claiming AIA, they reduce taxable profit by £100,000, saving £25,000 in corporation tax. Had they delayed until April, the benefit would move into the next tax year.

Misconceptions

Many assume capital allowances are automatic, they’re not. You must actively claim them. Others think only “big kit” qualifies. In reality, smaller items like laptops, printers, or even specialist software can also be included.

2. Maximise CIS Deductions and Credits

What It Is

The Construction Industry Scheme (CIS) requires contractors to deduct tax at source from subcontractor payments. At year-end, reconciling CIS is crucial because over-deductions can be reclaimed and under-reporting can trigger HMRC penalties. Subcontractors often finish the year having overpaid tax, while contractors risk compliance checks if returns don’t match records.

Eligibility

All businesses in construction using subcontractors or working as subcontractors must register for CIS and comply with monthly reporting.

Example

A subcontractor with £600k turnover has had £100k deducted under CIS during the year. On review, their actual tax liability is £80k. By filing correctly, they reclaim £20k from HMRC, vital working capital that could otherwise have been lost.

Misconceptions

A common mistake is assuming CIS automatically balances out at year-end. It doesn’t. You need to reconcile deductions carefully and apply for repayments where relevant. Another myth is that subcontractors don’t need to keep detailed records, in fact, HMRC requires evidence to support claims.

3. Use Year-End to Plan Dividend and Salary Mix

What It Is

For company directors, year-end is the right time to review how you extract profits. Balancing salary vs dividends is a tax planning strategy that can reduce overall liabilities. Salaries attract PAYE and NIC, but they are deductible for corporation tax. Dividends, while not deductible, are taxed at lower personal rates. The correct mix depends on your company’s profit, cash flow, and personal tax position.

Eligibility

Directors and shareholders of limited companies. This does not apply to sole traders or partnerships.

Example

A construction business with £250k profit reviews its director’s pay. Instead of taking a £100k salary (triggering higher PAYE and NIC), the director takes £12,570 salary and the rest as dividends. This structure saves around £8,000 in combined tax.

Misconceptions

Some believe dividends can be taken without profit, they can’t. Dividends must be paid from retained earnings, or directors risk breaching company law. Others think this planning only matters for “big companies.” Even a £500k-turnover SME can save thousands by structuring pay properly.

4. Reclaim VAT and Review Flat Rate Schemes

What It Is

VAT is one of the biggest cash flow pressures for construction firms. At year-end, businesses should review whether they’re reclaiming all allowable VAT and whether their VAT scheme still suits them. For example, the Flat Rate Scheme can simplify VAT for small businesses, but for construction firms with high material costs, it may result in overpaying. A review ensures you’re not leaving money on the table.

Eligibility

All VAT-registered businesses. Voluntary registration may also be worth considering for firms just below the threshold who have large VAT costs.

Example

A contractor with £900k turnover finds they’ve been using the Flat Rate Scheme but paying more VAT than necessary. Switching to standard VAT accounting saves them £12,000 annually by reclaiming VAT on materials.

Misconceptions

Some owners think VAT reclaim happens automatically. In fact, misclassified costs or poor record-keeping often mean claims are missed. Others assume the Flat Rate Scheme always saves money, it doesn’t if your input VAT is high.

5. Review Payroll and Employment Allowance

What It Is

Year-end is the time to check payroll compliance and ensure you’ve claimed the Employment Allowance, which reduces employer NIC by up to £5,000. Payroll errors at year-end can lead to penalties and unhappy employees. Reviewing staff costs also allows you to forecast for the new tax year, especially if you’re planning to expand or hire.

Eligibility

SMEs with employer NIC bills under £100,000 in the previous year. Applies to limited companies and partnerships with employees.

Example

A construction firm with 20 staff has £60,000 in NIC liability. By claiming the Employment Allowance, they reduce this to £55,000, saving £5,000 that can be redirected into staff training or new equipment.

Misconceptions

Some assume the allowance is automatic. it isn’t. You must apply through payroll. Others believe subcontractors under CIS count as employees, which they don’t.

Key Takeaways

• Year-end preparation is the difference between saving thousands and overpaying HMRC.

• Review capital allowances early to maximise relief on assets.

• Reconcile CIS to reclaim over-deductions and avoid penalties.

• Balance salary and dividend mix for directors to cut personal tax bills.

• Review VAT schemes and reclaim every eligible cost.

• Claim Employment Allowance to reduce NIC and free up cash.

At JFA, we help construction and engineering firms prepare for year-end with confidence. From tax year checklist to tax-saving strategies to compliance checks, we make sure no opportunity is missed. Book your year-end review today and take control of your numbers before HMRC does.

Wrapping up today's insights, tomorrow we simplify another accounting challenge.