Accounting software for UK construction businesses

CIS — Construction Industry Scheme deduction at source

Under CIS, every contractor making payments to subcontractors for construction operations must verify the subcontractor with HMRC and deduct tax at source from the labour portion of payments. The deduction rate is 20% for verified subcontractors, 30% for unverified, and 0% if the subcontractor holds gross-payment status (granted to firms meeting turnover, compliance, and business tests under section 64 of the Finance Act 2004). Materials, plant hire with operator, and CIS-exempt services like architect fees are excluded from the deduction base.

Monthly CIS300 returns are due to HMRC by the 19th of each month, reporting all payments and deductions for the prior tax month (6th to 5th). Even a nil month requires a filing. Penalties for missed CIS300 start at £100 and escalate; HMRC also withdraws gross-payment status for repeat offenders. HelloBooks tracks subcontractor verification status, computes labour-portion deductions automatically, generates monthly CIS300 returns + payment-and-deduction statements (CIS131-style), and pings the construction team before the 19th deadline.

VAT domestic reverse charge — live since March 2021

From 1 March 2021, supplies of construction services between VAT-registered businesses are subject to the VAT domestic reverse charge. The supplier doesn't charge VAT on the invoice; the customer self-accounts by including the same VAT amount on both Box 1 (output tax) and Box 4 (input tax) of their VAT return. Net cash flow neutral, but the supplier loses the VAT cash float they previously held between collection and remittance — a meaningful working-capital hit for subcontractors.

The reverse charge applies to supplies that are within CIS scope (most construction services to other VAT-registered businesses), but NOT to: supplies to end-users (final customers consuming the construction service for themselves), supplies to intermediary suppliers connected to the end-user, materials-only supplies, and supplies of architectural/surveying services. Misclassification is a top HMRC audit area for construction — HelloBooks flags every invoice for reverse-charge eligibility at point of creation based on the customer's VAT status and end-user declaration.

Retention accounting and applications for payment

UK construction payments typically run on applications for payment (not invoices) under JCT, NEC, or bespoke contracts. The contractor submits a monthly application; the certifier (usually QS or PM) issues a payment notice; payment is due within the contractual window (typically 14–30 days from certification). Retention of 5% (sometimes split as 2.5%/2.5% between practical completion and end of defects liability period) is held back by the customer as security against defects. HelloBooks handles applications + payment certifications as a separate document type from VAT invoices, tracks retention on a contract-by-contract basis as a current asset, and flags the release dates so retention recovery is never missed.