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The Construction Industry Scheme (CIS): What It Is, How It Works, and Why Getting It Wrong Is Expensive

Posted on by Sarah

The Construction Industry Scheme (CIS) is one of the most misunderstood areas of UK tax. It sits awkwardly between payroll, self-employment, VAT and corporation tax. It catches out contractors and subcontractors every single year.

If you operate in the construction industry, whether as a sole trader, limited company, contractor, or subcontractor, CIS is not optional. It is a core compliance obligation with real cash flow and tax consequences.

This guide explains what CIS is, who it applies to, how deductions work, and why specialist support matters, particularly in construction where margins are tight and admin errors are costly.

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What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme is a tax deduction scheme operated by HM Revenue & Customs.

Under CIS, contractors are required to deduct tax from payments made to subcontractors for construction work and pay this tax directly to HMRC.

These deductions are effectively advance payments towards the subcontractor’s tax bill.

CIS applies to most construction work carried out in the UK, including:

  • General building and construction
  • Alterations, repairs, and decorating
  • Civil engineering
  • Groundworks and demolition
  • Installation of systems such as heating, lighting, and power

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Who CIS Applies To

CIS affects both sides of the construction supply chain.

Contractors

You are a contractor if you:

  • Pay subcontractors for construction work, or
  • Spend more than £3 million on construction over a rolling 12-month period (even if construction is not your main trade)

Contractors must:

  • Register for CIS
  • Verify subcontractors
  • Deduct tax where required
  • Submit monthly CIS returns
  • Pay deductions to HMRC on time

Subcontractors

You are a subcontractor if you:

  • Carry out construction work for a contractor

Subcontractors can be:

  • Sole traders
  • Partnerships
  • Limited companies

Subcontractors may have tax deducted at:

  • 20% (registered)
  • 30% (not registered)
  • 0% (gross payment status)

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How CIS Deductions Work

CIS deductions are taken from the labour element only, not from materials, VAT, or certain qualifying costs.

For example:

  • Labour: £1,000
  • Materials: £300
  • CIS deduction at 20%: £200
  • Net payment received: £1,100 (plus VAT if applicable)

For subcontractors, these deductions are not an extra tax, but they must be correctly claimed or offset later.

This is where things often fall apart.

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Why CIS Causes Problems (Even for Established Businesses)

CIS issues are rarely about ignorance. They are usually about poor systems.

Common problems we see include:

  • Incorrect labour vs materials split
  • CIS deducted but never reclaimed
  • CIS suffered not reflected correctly in accounts
  • PAYE and CIS treated as separate silos
  • Limited companies missing CIS set-offs against Corporation Tax
  • Contractors filing late or inaccurate CIS returns
  • Cash flow pressure caused by excessive deductions

Once CIS errors stack up, they don’t quietly resolve themselves. They compound.

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CIS for Limited Companies (Often Overlooked)

CIS does not just affect sole traders.

If your construction business operates through a limited company:

  • CIS deductions suffered can be offset against PAYE, NIC, and Corporation Tax
  • Timing matters, particularly around year end
  • Incorrect treatment can distort profitability and cash flow reporting

This is where generalist accounting falls short.

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Why Construction Needs Specialist Accounting Support

Construction is not just “another sector”. It has:

  • CIS
  • VAT complications
  • Irregular cash flow
  • Retentions
  • Project-based profitability
  • High compliance risk

Trying to bolt CIS onto a generic bookkeeping setup usually ends badly.

That is why we operate a dedicated construction finance function alongside our main practice, Construction Tax & Finance

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Our Specialist Construction Service

At The Accountancy Office, we support construction businesses through our in-house specialist service, Construction Tax & Finance (CTF).

CTF exists for one reason, to handle the complexity of construction properly, not as an afterthought.

Our construction clients receive:

  • CIS registration and verification
  • Monthly CIS returns and compliance
  • Accurate CIS deductions and set-offs
  • Bookkeeping structured for construction realities
  • VAT support tailored to construction schemes
  • Cash flow visibility and forecasting
  • Year-end accounts that actually reflect the business
  • Ongoing tax planning, not reactive fixes

Business Planning- Thinking of Making Changes in 2026?

Posted on by Sarah

January Business Planning Matters More Than You Think.

For many business owners, this is when thoughts start forming about growth, restructuring, investment, and improvement, even if the action won’t happen for months – and that’s exactly how it should be.

Because the biggest business mistakes are rarely about ambition.

They’re about timing.

Taking on Staff

Hiring is rarely “just” hiring.

It brings PAYE, pensions, employer NIC, payroll software, HR policies, holiday pay, and cash flow impact. Businesses often underestimate the true cost of an employee by 20–30%.

Business Planning this early allows you to:

  • Forecast affordability properly
  • Choose the right pay structure
  • Avoid panic hiring later in the year

Changing Business Structure

Sole trader to limited company is not a badge of success. It’s a tax and risk decision.

Timing matters. Profit levels matter. VAT status matters. Existing contracts matter.

Get it right and you save tax.

Get it wrong and you create admin, cost, and sometimes HMRC attention you didn’t need.

Investing in Equipment or Vehicles

Capital allowances, VAT treatment, finance structures, and cash flow all collide here.

Buy at the wrong time, and the tax benefit disappears.

Buy at the right time, and the business keeps more of its money.

The difference is planning, not luck.

mproving Systems

Better bookkeeping, better software, and better processes don’t just save time.

They protect decision-making.

If your numbers are late, messy, or unclear, every decision is a guess dressed up as confidence.

Reviewing Financial Processes and Your Accountant

January is also when many business owners quietly question whether their current financial setup is really working.

Are reports late or unclear?

Do you only speak to your accountant when something has already gone wrong?

Are you getting compliance, but no guidance?

Sometimes the issue isn’t the business. It’s the process, or the support around it.

Reviewing your bookkeeping systems, reporting structure, and even your accountant is not disloyal. It’s responsible. Businesses evolve. The level of financial support they need evolves too.

The right accountant should help you plan, challenge assumptions, and protect future decisions, not just file past ones.

The Truth

Big changes work best when they are planned, not rushed.

January is not about doing everything.

It’s about positioning yourself so that when opportunity appears, you are ready rather than reactive.

If you are not having at least one structured planning conversation with your accountant each year, you are leaving money, time, and control on the table.

We can help with all of the above. Get in touch and arrange your free call.

HMRC’s Latest “Deliberate Tax Defaulters” List.

Posted on by Sarah

HMRC has published its newest list of deliberate tax defaulters on 20 November 2025, and, wow… it is quite the line-up.

Over 160 individuals and businesses have been named and shamed for deliberately underpaying more than £25,000 in tax. And as always, the list is a fascinating (and slightly shocking) cross-section of UK industries.

Let’s break down what this means for real business owners, what you can learn from the mistakes of others, and how to make sure your company never finds itself anywhere near this list.

Who Made the List? A Few Eye-Watering Examples

HMRC doesn’t just publish this for fun. These entries are public, searchable and stick around for up to 12 months. Some notable names include:

• Max Distributors Ltd (vape importer), defaulted on over £6.1 million

• Metropolitan International Schools Limited, unpaid tax over £4.8 million

• Euro Recycling Brokers Limited, defaulted on £4.8 million

• GP Total Engagement Ltd, unpaid tax of £314,810

• Warren Christopher Poots, freelance consultant, owed over £199,000

Different industries, different stories, one common thread: serious compliance failures.

HMRC only publishes when the default is considered deliberate. That means the business didn’t simply “miss something”; they either concealed, failed to notify, or misrepresented their tax position during an investigation.

The Real Impact of Making This List

This isn’t just a slap on the wrist. Being on this list means:

• Your name, business, address and tax owed become public record

• You face financial penalties on top of the unpaid tax

• Your reputation takes a hit with customers, suppliers, lenders and investors

• Future HMRC investigations become far more likely

• Professional advisors may even decline to act for you

Once you’re on this list, you don’t get to pretend it was all a misunderstanding.

What Directors Should Take From This

he majority of UK directors are not trying to dodge tax. In fact, most are just trying to do their best while juggling  many different responsibilities. But here’s the truth:

When you let your financial records slip, you create the perfect environment for mistakes…and HMRC doesn’t care whether it was an accident.

Inaccurate bookkeeping

Late VAT returns

Unreconciled accounts

Directors not keeping track of what they withdraw

That’s how small errors become investigations, and investigations become penalties.

 

So, How Do You Stay Off HMRC’s Radar?

1. Keep your accounting records up to date

You cannot make good decisions on bad numbers. And you definitely can’t defend yourself to HMRC with guesswork.

2. Understand the taxes that apply to you

Corporation Tax, VAT, payroll, dividends… directors are expected to know the basics.

3. Ask for help before something becomes a problem

Because once HMRC is asking the questions, it’s already too late to tidy up quietly.

4. Don’t ignore letters, queries or compliance checks

Silence is taken as suspicion. Always respond properly and quickly.

5. Surround yourself with professionals who actually look after you

Not the accountant who files your year-end three months late.

Not the one who replies once a week.

Not the one who “assumes it’s fine”.

 

Lists like this exist for a reason: to remind business owners that tax compliance is not optional and HMRC will pursue you if they believe you’ve deliberately failed to pay.

But here’s the good news…

When your numbers are clean, organised and monitored monthly, you never have to worry about ending up on a list like this.

At The Accountancy Office, this is exactly why we work the way we do. Weekly bookkeeping. Monthly reviews. Ongoing compliance checks. A finance team that spots issues long before HMRC does.

If you’re looking at this list thinking “that will never be me”… great.

If you’re looking at this list thinking “I hope that’s never me”… then you might need support.

And if you want peace of mind, accuracy and proper oversight, get in touch.

The Autumn 2025 Budget Is Coming.

Posted on by Sarah

Here’s How To Prepare for the Autumn 2025 Budget Without Losing Your Mind

The 26th November Budget is almost here, and let’s be honest, most business owners feel that familiar knot in their stomach. Every year the rumour mill starts spinning… possible tax changes, whispers about allowances, dramatic headlines designed to spike your blood pressure before breakfast.

But here’s the truth that nobody seems to shout loudly enough, speculation means nothing.

Nothing counts until the Chancellor actually stands up and delivers the changes.

So for now, the very best thing you can do is simple. Do not panic. Prepare.

Start With Your Accounting Records

If your accounting records are behind, messy or half-updated, you’re going to struggle to understand the impact of the Budget changes when they land. Guesswork leads to stress, and stress leads to poor decisions.

When your numbers are accurate and reliable, something magical happens.

The moment the Budget is announced, you can see exactly how the changes affect you.

Not hypothetically, not roughly, but clearly and instantly.

This puts you firmly in control. 

Our Clients Will Be Fully Supported

Whatever comes out of the Budget announcement, our clients will not be navigating it alone.

We’ll break everything down in plain English, explain what actually matters, and guide you through your next steps so you know exactly where you stand.

If You’re Not a Client (Yet)… Don’t Struggle Alone

Finance and numbers are consistently the biggest stress factors for business owners.

If you find yourself staring at the Autumn 2025 Budget announcement thinking “I can’t get my head around this”, speak to your accountant. That is literally what we are here for.

And if you need a hand, I’m more than happy to help.

Focus On What You Can Control

Ignore the rumours.

Get your accounting records updated.

Be ready to plug the numbers in as soon as the real details are released.

When the Chancellor speaks on 26 November, you’ll be prepared to make decisions with a clear head, rather than reacting in blind panic.

This is how directors stay ahead. Not by guessing, but by preparing.

Making Tax Digital (MTD) and Your Accountant: What Will Change (and What Won’t)

Posted on by Sarah

Making Tax Digital (MTD) is HMRC’s long-term plan to modernise the UK tax system. It’s already in place for VAT and, from April 2026, it will start rolling out for self-employed individuals and landlords with income above £50,000.

What does this mean for me –  and will it change how I work with my accountant?

The good news is: with the right support, very little will feel different. Here’s a breakdown of what will change under MTD, and what won’t.

Countdown to MTD for Income Tax

Deadline: April 2026

That’s less than 7 months away.

While that might sound like plenty of time, MTD preparation takes longer than most people expect. Choosing the right software, setting up digital records, and adjusting processes should all be done well before the deadline – ideally during 2025.

What Will Change

  1. More frequent reporting

Landlords and sole traders will need to submit quarterly updates to HMRC, instead of one annual Self Assessment return. That means information has to be kept more up to date.

  1. Mandatory digital record-keeping

Paper records and basic spreadsheets won’t cut it. HMRC requires digital records to be kept in compliant software like Xero.

  1. Tighter deadlines

Quarterly updates, end-of-period statements and a final declaration all carry strict deadlines. Missing them could mean penalties.

  1. Technology at the core

MTD is built on software. If you’re still managing your accounts outside of Xero (or another recognised platform), that will have to change.

What Won’t Change

  1. Your need for an accountant

MTD doesn’t replace the need for advice — in fact, it makes it even more important to have someone keeping an eye on the bigger picture.

  1. Our support for you

At The Accountancy Office, we already manage digital records for all of our clients. We’ll continue to take care of the submissions and make sure everything is filed on time.

  1. Your relationship with HMRC

You won’t suddenly have to deal with HMRC more often. We’ll still be your first point of contact, handling the reporting on your behalf.

  1. The bigger financial picture

Tax planning, profit extraction, cash flow, and your overall business strategy remain exactly as important as ever. MTD doesn’t change that.

The Bottom Line

Making Tax Digital is a change in process, not in purpose. It’s about how HMRC receives information, not about reinventing the rules of tax. With us as your accountant, you won’t need to worry about the deadlines or the tech – we’ll handle the transition and keep things running smoothly.

Don’t wait until 2026. Get ahead of MTD now so that by the time the deadline arrives, you’re already running smoothly.

Book a call with us today and we’ll walk you through what MTD means for your situation.

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Book a call link: https://calendly.com/accountancyoffice/makingtaxdigital

Dividends-More Big Changes for Directors, Detailed Reporting on Dividends from 2025/26

Posted on by Sarah

Dividend Changes-If you’re a director-shareholder of a limited company, read on – your 2025/26 tax return will be more detailed than ever.

From 6 April 2025, HMRC is introducing new reporting requirements for individuals receiving dividends from “close companies” (typically, limited companies controlled by five or fewer people or directors). These changes are aimed at increasing transparency –  and yes, there are penalties if you get it wrong.

What’s changing?

If you receive dividends from a company you’re a director of, you’ll need to disclose more information on your self-assessment tax return for 2025/26. Specifically:

  • Whether you were a director of the company
  • Whether it was a close company
  • The name and registered number of that company
  • The amount of dividends you received (even if that figure is £0)
  • The highest percentage shareholding you held in that company during the year

Previously, you could simply report dividend income as a single total. Now, you must break it down company-by-company, even if you own multiple entities or your shareholding changed during the year.

Why the change?

HMRC says this is about transparency. Dividend payments made to directors of close companies are often tricky to track, especially when they’re lumped in with other investment income. The new requirements aim to close that gap – and help HMRC identify mismatches between what a company declares and what a director receives.

Will there be penalties?

Yes. A £60 penalty can apply for each failure to provide the required information. So if you leave off the company number or forget to mention your highest shareholding percentage — that could trigger a fine.

What you need to do now:

Don’t wait until January 2027 to start thinking about this. You should:

  • Start recording dividend payments from each company separately
  • Keep notes of your shareholding % throughout the year (and the highest point)
  • Make sure you have the correct company registration numbers handy
  • Let your accountant know that this info will be needed when preparing your next return

If you operate a limited company and pay yourself via dividends, this absolutely applies to you.

Please contact us if you’d like to discuss your Dividend payments then please contact us on 01386 366741 or email here and one of our advisers will be in contact.

Making Tax Digital-How to Get Your Business Ready for MTD for ITSA

Posted on by Sarah

Making Tax Digital for Income Tax (MTD for ITSA) comes into effect from April 2026. If you’re self-employed or a landlord earning more than £50,000 a year, this will affect you directly from 2026.

Here’s a step-by-step guide to getting prepared:

1. Check if you’re in scope

  • Self-employed income over £50,000
  • Rental income over £50,000 (including jointly owned property, split by share)
  • Directors: dividends and PAYE aren’t included, but if you also have rental/self-employed income above £50,000, you’ll need to comply.

2. Choose MTD-compliant software

Spreadsheets and manual records won’t meet HMRC requirements. You’ll need approved software such as Xero to maintain digital records and submit returns.

3. Set up your digital record-keeping

Start recording all income and expenses digitally now. The sooner you begin, the smoother the transition will be.

4. Prepare for quarterly submissions

Instead of one annual Self Assessment, you’ll be reporting four times a year, plus an end-of-period statement and final declaration.

5. Speak to your accountant

We’ll make sure your software is set up, records are accurate, and deadlines are met. Most importantly, we’ll use the more regular data to keep you on top of your tax position throughout the year.

Countdown: April 2026

That’s less than 7 months away. Starting now will save stress later.

Get in touch to find out how we can set you up for Making Tax Digital and keep everything running smoothly.

Mid-Year Tax Planning- Why it is More Important Than You Think

Posted on by Sarah

What is Mid-Year Tax Planning?

Mid-year tax planning is a proactive review of your finances (usually around September–November) to identify opportunities to minimise tax, optimise profit extraction, and plan cash flow for the months ahead. It’s about being forward-looking, not just reacting once the year has already ended.

Now as the year draws to a close, many business owners are focused on finishing strong, wrapping up projects, and getting ready for a fresh start in January. But when it comes to your finances, waiting until year-end to review your tax position is often too late to make meaningful changes.

That’s where mid-year tax planning comes in. Taking time now—while there’s still flexibility—can make a significant difference to both your tax bill and your overall financial health.

The Benefits of Mid-Year Tax Planning

1. Time to Take Action

By checking in before year-end, you still have time to implement strategies such as pension contributions, dividend payments, or capital purchases. These can reduce your taxable income, improve cash flow, and ensure you’re working in the most tax-efficient way.

2. Avoid Nasty Surprises

Nobody enjoys an unexpected tax bill. A mid-year review highlights your likely tax position, so you know what’s coming and can set aside the right funds. No more scrambling to cover a bill you didn’t plan for.

3. Optimise Salary and Dividends

For limited company directors, the right balance of salary and dividends is key. A review before the year-end ensures you’re extracting profit in the most efficient way—making the most of allowances and avoiding unnecessary tax.

4. Make the Most of Allowances and Reliefs

There are plenty of tax allowances and reliefs available—but most need to be used before the tax year ends. A mid-year check makes sure nothing is missed, whether it’s ISA contributions, capital allowances, or director’s pension planning.

5. Cash Flow Confidence

Knowing your tax position in advance means you can plan your cash flow with confidence. Whether that’s setting aside funds for your January self assessment bill, or planning investment back into your business, you’ll avoid unnecessary stress.

6. Stay Ahead of Changes

Tax rules and thresholds shift constantly. A mid-year review allows you to get tailored advice on how upcoming changes may affect your business and personal finances—so you’re never caught off guard.

Summary

Mid-year tax planning isn’t about creating more admin – it’s about making smarter financial decisions while you still have options. By taking a proactive approach now, you can:

  • Save money on your tax bill
  • Make the most of allowances and reliefs
  • Plan ahead with clarity and confidence
  • Avoid unwanted surprises

If you’d like to make sure you’re set up for success before the year-end, why not start with a free 15-minute discovery call? It’s a no-obligation way to talk through your situation and see where we can help. Book your free discovery call here.

 

Making Tax Digital- Why Spreadsheets Won’t Be Enough

Posted on by Sarah

For years, spreadsheets have been the go-to tool for tracking income and expenses. But under Making Tax Digital (MTD), they just won’t cut it. Here’s why.

Spreadsheets aren’t fully digital

MTD requires digital records and a direct link to HMRC. Copying and pasting figures into a form won’t be allowed – it breaks the “digital link” rule. However, you can look into ‘bridging software’ that will convert your spreadsheet to MTD compliant format.

Risk of errors

Spreadsheets are prone to mistakes. One wrong formula or accidental overwrite can cause huge problems, especially when quarterly reporting is mandatory.

No automation

Software like Xero pulls in bank transactions, invoices, and receipts automatically. Spreadsheets can’t match that — meaning more admin and higher risk of missing transactions.

Penalties for non-compliance

If HMRC finds you’re not keeping records in an approved way, you risk penalties and extra scrutiny.

The better alternative: Cloud accounting software

Xero and other MTD-compliant tools are designed to:

  • Maintain digital records in line with HMRC rules
  • Submit quarterly updates automatically
  • Provide real-time visibility of your tax position

In Summary 

Spreadsheets might feel familiar, but they’ll soon be a compliance risk. By switching now, you’ll not only be MTD-ready, you’ll also benefit from smarter bookkeeping, better reporting, and less admin.

Talk to us today about moving onto Xero ahead of MTD.

Full Finance Function: Stop Losing Time and Money Without One

Posted on by Sarah

Why A Full Finance Function is important to you and your business.

You didn’t start your business to reconcile bank feeds or chase VAT deadlines.

But without a full finance function in place, you’re probably:

  • Duplicating data entry across systems
  • Reacting to problems after they hit
  • Making decisions with outdated numbers
  • Paying penalties because something was missed

Our clients who’ve switched to our fully managed finance function have saved hours each week – and tens of thousands per year. Why? Because we systemise, automate and optimise your entire financial workflow.

No more siloed spreadsheets. No more panicked HMRC calls. Just proactive financial management that pays for itself.

💡 Tax Tip: Want to reduce your Corporation Tax bill? We help identify eligible expenses—like director life insurance policies under an “excepted group life scheme”, staff events, or even home office allowances – that most business owners overlook. These small wins add up fast when tracked by someone who knows where to look.

Please contact us if you’d like to discuss your Finance tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.