How to Reduce Your Tax Bill as a Construction Business

Wednesday, 19th March, 2025

Running a construction business comes with significant costs, but there are several strategies you can use to reduce your tax bill and improve profitability. At Pro Tax Plus Accountants, we specialise in helping construction businesses maximise tax savings while staying compliant with HMRC regulations. Here's how you can lower your tax burden effectively.

1. Take Advantage of CIS (Construction Industry Scheme) Deductions

   If you operate as a contractor or subcontractor, you may be subject to CIS deductions. However, you can reclaim overpaid CCIS tax by ensuring accurate record-keeping and filing your tax returns correctly.

   
   

2. Claim Allowable Expenses

   Construction businesses have various allowable expenses that can reduce taxable income. These include:

   
   

   - Tools and equipment

   - Protective Clothing (PPE)

   - Vehicle and fuel costs

   - Office rent and utilities

   - Professional fees (e.g., accountants, legal services)

   
   

   Tracking and claiming these expenses correctly can significantly lower your tax bill.

   
   

3. Utilise Capital Allowance

   If you purchase machinery, tools, or vehicles for your business, you may qualify for capital allowance. The Annual Investment Allowance (AIA) allows you to deduct the full cost of qualifying assets from your taxable profits, reducing your tax liability.

   
   

4. Register for VAT Efficiently

   If your construction business is VAT-registered, consider using the VAT Flat Rate Scheme, which simplifies VAT calculations and may reduce your payments. Additionally, ensure you're reclaiming VAT on business-related purchases where applicable.

   
   

5. Use the Employment Allowance

   If you have employees, the Employment Allowance can reduce your National Insurance contributions by up to £5,000 per year. This can provide valuable savings for growing construction businesses.

   
   

6. Consider Incorporating Your Business

   Operating as a Limited Company instead of a Sole Trader may offer tax advantages. Limited Companies typically pay Corporation Tax (currently 19% - 25%), which can be lower than personal tax rates on high earnings. Incorporation also provides liability protection and additional tax planning opportunities.

   
   

7. Plan for Tax-Efficient Payroll & Dividends

   If you're a director of a construction business, a combination of salary and dividends can be more tax-efficient than taking all income as a salary. This approach can help minimise Income Tax and National Insurance Contributions.

   
   

8. Make Pension Contributions

   Contributing to a pension scheme can reduce your taxable income while securing your financial future. Employer contributions to pensions are also tax-deductible expenses for the business.

   
   

9. Stay on Top of Deadlines & Compliance

   Late tax filings and payments can result in penalties and interest charges. Keeping up with HMRC deadlines ensures you avoid unnecessary costs. Working with a professional accountant ensures you stay compliant and avoid fines.

   
   

10. Seek Professional Tax Advice

    Construction tax laws can be complex, and missing out on deductions or reliefs can cost your business thousands. At Pro Tax Plus Accountants, we provide tailored tax planning strategies to help you keep more of your hard-earned money.

Conclusion

Reducing your tax bill as a construction business requires careful planning and expert advice. By taking advantage of tax deductions, capital allowances, and efficient VAT registration, you can legally minimise your tax liability while growing your business. Contact Pro Tax Plus Accountants today to discover how we can help you maximise your tax savings.