Construction is a very different industry. Rather than following the classic buy-and-sell model, the construction industry deals with various projects and moving parts. It can be very difficult to track when you receive the payment, how much and what the taxes are.
Construction accounting follows a specialised practice with a unique subject line. Various reporting methods and tax rules. The construction business deals with contract terms and asynchronous billing systems. There have been significant changes in the working sphere.
Accounting is one of the most important parts of any business. It helps you understand the influx of money- where it comes from and where it goes. However, when it comes to construction accounting, the procedure is slightly different.
In the construction industry, a project usually lasts for a long time, even years. Hence in these conditions, the payment term can get extremely complicated. The construction industry contractors will therefore need to follow the unique regulations concerning Construction Industry Scheme and VAT reverse charge.
Therefore, construction accounting can help to cope with it. The construction industry will use different principles to ensure that people are paid at the right time. This helps to provide complications.
Construction accounting usually follows a certain set of rules, especially in taxes and generally accepted accounting principles. The rules will eventually adapt to the GAAP and taxation. Construction accounting usually follows the unique characteristics, such as
For the construction industry, the revenue happens with building contracts and custom terms, deliverables and specifications. Most contractors in today’s time are using job costing methods. The job costing procedure is slightly different from the regular one, focusing on product-based profitability. The job costing is applicable for direct costs such as materials and labour.
Apart from the GAAP considerations, the contractors must be aware of the tax rules. Hence, the accounting method is a crucial factor to consider. The construction accounting method should have guidelines in the Internal Revenue Code section (IRC460). The IRC460 follows industry-specific tax rules inclusive of several exceptions.
The tax treatment is usually calculated based on contract by contract basis that uses different methods. The two types of construction methods, as determined by the length, include the following:
Construction accounting has many structures, especially in allocating indirect and direct projects. The costs will further be optimising the tax reports. The contract companies will need to decide whether to use the accrual-basis or cash-basis accounting method. The contractor will need to manage the orders, therefore, determining whether they can make a particular project profitable.
Some of the prominent practices for construction accounting include the following:
In cash basis accounting, you will have two choices: accrual basis and cash basis. Small construction businesses usually follow cash-basis accounting. On the other hand, the company will record revenues depending on the expenses and received based on how the vendors pay. Comparatively, cash-basis accounting is simple as it helps in managing day-to-day finances. Therefore, it also needs less financial expertise. However, companies with more than $25 million as revenue will not be able to use cash basis accounting because of tax purposes.
As discussed above, the nature of the construction industry is such that even the best saving plans can get hampered. Therefore, as a construction business owner, you must be ready to keep up with the changes. In case of any alterations or modifications, you must be ready to adapt to them.
Some of the changes would include changes in design, the scope of the project and more. When you start a project in the construction industry, you must be ready to anticipate the project. At the beginning of the project itself, the terms must be clarified. This should be done to avoid any confusion or complications that may arise while raising the invoice.
Project management with proper documentation is one of the major requirements of the construction accounting industry. Documenting and monitoring the changes will give you an idea of what is required. You can raise an invoice and ensure you’re paid for the work.
As per the rule of the UK government, compliance with the charges is an important factor to consider. The requirements across the construction industry are hitting most accounting firms. This is not only having an impact on the industry but also on understanding how the entire process is smoothly done.
The UK government has introduced a few changes across the construction accounting industry. One of the major introductions has been the VAT reversible charges. Furthermore, the government has also introduced the requirement of paying taxes through the Making Tax Digital initiative.
The adjustments in the rules of the Construction Industry Scheme also have a huge factor to play. It is advisable to consider the basics and understand the impact of it.
If you’re in the construction industry, you must assess your needs to understand whether or not you need a construction accountant. The construction accountants will assist you with the process of completing reports. They are going to help you manage the taxes and finances. Each of these would constitute the success of your business. With a streamlined accounting system, you can capitalise not only on the expenses but also on the experience.
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
DNS House, 382 Kenton Road,
Harrow, Middlesex, HA3 8DP
“I recently started my own company and in need of a good accountant. With my friends reference, I started dns accountancy services and I am a quite satisfied with their service. My account manager Sneha Gurudutta was always responsive and guided me a lot especially during my company early days. Keep u the good work.”
“I have been dns for the last 3 months and I am very happy with the service. My account manager Sneha Gurudutta guided me and helped me with all the major/minor steps with the account setup. The weekend support they provide is really helpful. I would definitely recommend dns to all my friends.”
“Unfortunately my son passed away without leaving any contact name of his accountant. I was able to make contact with the firm through HMRC. The staff were very prompt, caring and supportive in settling his income tax account. I was extremely impressed with the efficient caring and supportive service received from all of dns staff.”
“Been with dns Accountants for more than a year I would highly recommened their services. My account manager Sneha has been very helpful and helped with accounts and queries swiftly always! Having a good accountant means you can fully focus on your business, not worry about accounts and tax matters. Thank you dns :-)”
“I have been extremely satisfied with the service I have been receiving close to past 1 year. Very professional, transparent and helpful. Special mention of my Account Manager Minakshi Arora who made my transition very smooth and always ready to go that extra mile to support and make customer happy. Definitely recommended.”
“I've recently set up a Ltd. Company and signed up with dns for my accounting services. I've found it very good value for money and hugely helpful in terms of advice and guidance. I have a named Account Manager, Sneha Gurudutta, who keeps in contact with me and offers advice on line and on the phone... I'm really pleased with the service.”