Construction Accounting Made Simple: Year-End Preparation

Introduction - Construction Accounting Year-End Preparation

For construction and engineering businesses, the end of the tax year is more than just a date on the calendar, it’s a make-or-break moment. With tight margins, complex subcontractor arrangements, and cash flow that often swings between feast and famine, poor preparation can result in unexpected tax bills, lost reliefs, and HMRC penalties.

At Jones Financial Accounts (JFA), we specialise in helping SMEs and construction firms plan ahead, stay compliant, and keep more of what they earn.

This guide explains what you need to review, why it matters, and the strategies to ensure your business enters the new year stronger, not weaker.

What You Need to Review

As the tax year closes, there are three key areas every construction business should review: profits, expenses, and payroll.

First, your profit and loss (P&L) report must be accurate. Construction businesses often have jobs still in progress at year-end, and if you don’t account for these correctly, your profits may be overstated or understated, impacting your corporation tax bill.

Next, review expenses. Too many firms miss out on legitimate claims like tools, protective equipment, mileage, or capital allowances for machinery. A careful review ensures you’re not paying more tax than necessary.

Payroll is another major review point. With subcontractors under the CIS scheme and employees on PAYE, errors in reporting can trigger penalties. Reviewing payroll records, CIS returns, and director remuneration before year-end prevents costly corrections later.

By checking these areas early, you can spot opportunities to save tax and avoid last-minute scrambles when HMRC deadlines arrive. A proactive review means you’re in control, not caught off guard.

Why It Matters for Businesses

Done right, year-end preparation strengthens your financial position. You claim every relief, reduce unnecessary tax, and enter the next year with clarity.

Done wrong, it’s like leaving scaffolding half-built, dangerous, costly, and bound to collapse at the worst moment.

Take expenses as an example. A construction firm with £2m turnover that misses £50,000 of eligible costs could overpay £12,500 in corporation tax at the 25% rate. That money could have gone into new equipment, hiring staff, or building a cash buffer.

The risks go beyond money. Late or inaccurate filings damage your reputation with lenders, suppliers, and HMRC. They also create stress across the leadership team, precisely when directors should be focused on growth, not firefighting.

Getting it right not only saves cash, but also builds trust and credibility. It signals to banks, investors, and clients that your business is run with the same precision you expect on-site.

In construction, where margins are thin, this credibility can be the difference between winning the next project or losing out.

Strategy to Get It Right

Preparation is about building strong systems, not leaving everything until the last day.

Start by scheduling a year-end review at least 60 days before your business year closes. This gives time to adjust drawings, review project WIP (work in progress), and finalise subcontractor CIS statements.

Next, reconcile your accounts monthly. Many construction firms only discover mistakes when it’s too late. Regular reconciliation keeps VAT, payroll, and CIS aligned.

Also, plan director remuneration early. A well-structured mix of salary and dividends can save thousands in tax. Leaving this until year-end means missing opportunities for efficient planning.

Finally, forecast cash flow into the next quarter. HMRC payments (corporation tax, PAYE, VAT) don’t wait, and a forecast prevents surprises. Tie this into your management accounts so directors see the bigger picture, profitability, tax liabilities, and available cash.

In short, the right strategy is simple: plan early, reconcile regularly, and link finance directly to operational decisions. This ensures you step into the new tax year with confidence.

Common Mistakes (with Punishments & Penalties)

• Ignoring CIS compliance – Late or incorrect CIS returns can lead to penalties starting at £100 per return, quickly adding up for contractors with multiple subcontractors.

  
  

• Overlooking WIP – Treating uncompleted projects as finished can inflate profits, leading to higher tax bills now and lower profits later.

  
  

• Missing expense claims – Forgetting capital allowances or misclassifying costs results in overpaid tax. HMRC won’t remind you.

  
  

• Late filing – Missing the corporation tax or self-assessment deadlines triggers penalties, interest, and increased scrutiny from HMRC.

  
  

• Poor record-keeping – Lost invoices or receipts mean HMRC can disallow claims, weakening your tax position and increasing liability.

  
  

Each of these mistakes chips away at profit and damages trust with stakeholders.

Misconceptions

• “I can sort everything after year-end.” Wrong. Many reliefs (like capital allowances or pension contributions) must be in place before the year closes. Waiting until the year-end filing is too late.

  
  

• “My bookkeeper has it covered.” Bookkeeping is vital, but it doesn’t replace year-end tax strategy. A bookkeeper records history; a finance director helps shape the outcome.

Why Professional Support Pays Off

Professional support transforms year-end from a stressful rush into a strategic advantage.

At JFA, we go beyond compliance. We ensure every allowance is claimed, CIS and payroll are clean, and directors’ pay is optimised. More importantly, we give leadership teams clarity on their financial story, so they can make confident decisions about hiring, bidding, and investing.

For construction firms scaling past £500k turnover, this is not optional. The complexity of contracts, VAT, and payroll makes DIY dangerous. Professional oversight reduces risk, saves tax, and frees directors to focus on growth instead of paperwork. With JFA, you’re not just filing accounts, you’re building a foundation for profitability.

Key Takeaways

• Review profits, expenses, and payroll before year-end to avoid costly surprises.

• Done right, preparation saves tax and builds credibility; done wrong, it risks penalties and lost opportunities.

• Plan early, reconcile regularly, and align finance with your projects.

• Professional support pays for itself through savings, risk reduction, and better decisions.

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