Running a small construction business involves following a lot of rules and guidelines. Before you get started, there are some key things you should know.
Here, we’ll discuss some important steps for running a small construction business. Specifically, we’ll talk about:
- CIS tax
- Building a tech stack
Some of these are legally required for setting up and working, and others are just good advice for helping your daily work life.
There are a lot of insurance policies you should look into, before beginning construction. We’ll list some of the most common ones below, but some companies offer them all in a bundle called Tradesman Insurance.
Public liability insurance
This will protect you if anybody is injured on your property, or their property is damaged because of your business.
Employers’ liability insurance
If you have any staff, you’re legally required to have employer’s liability insurance. It will cover any claims made by staff who are injured or seriously ill due to working for you.
It’ll cover you against any losses caused by damage or theft.
Contract works insurance
Another kind of property insurance. It’ll protect against losses caused by accidental property damage or theft, when it’s on site. It also covers any property you’ve hired or materials you’re using.
Legal expenses insurance
If you get involved in legal action, legal expense insurance will cover the legal costs.
Legal expense insurance covers:
- Employment tribunals
- Disputes with neighbours
- Contract disputes
- Tax/VAT inspections
Personal accident & sickness insurance
This will help cover your monthly outgoings if you find yourself unable to work because of sickness or injury.
If you’re permanently unable to work, you can also get a lump sum payout. This will usually happen if the sickness is terminal, or the injury is permanent (like the loss of limb).
Running a construction business of any size means you’ll have to register for CIS (Construction Industry Scheme) tax.
The Construction Industry Scheme (CIS) is a programme introduced by HMRC that affects contractors, and the subcontractors they hire for construction work.
Under the scheme, contractors take a small amount from the money they pay their subcontractors. The amount they take will be passed on to HMRC and contribute toward the subcontractor’s income tax and national insurance.
If you hire a subcontractor for construction work
You’ll have to deduct payments from their wages.
The deduction rates laid out by HMRC are::
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% if the subcontractor has gross payment’ status
After hiring a subcontractor, you’ll receive an invoice for the work they’ve done.
Start with the total amount of the subcontractor’s invoice, then take away the amount the subcontractor has paid for:
- equipment which is now unusable (‘consumable stores’)
- fuel used (except for travelling)
- equipment hired for the job
- manufacturing of prefabricated materials (stuff like aluminum steel, wood, fiberglass and concrete)
Finally, deduct the CIS percentage rate from the amount that’s left. The amount you’re left with will be the actual payment you give to the subcontractor.
For example, if you hire a registered subcontractor, they’ll qualify for a 20% CIS deduction.
Their invoice might look something like this:
- Labour – £1000 + £200 VAT (20%)
- Materials – £200 + £40 VAT (20%)
- Total invoice – £1200 + £240 VAT = £1440
To figure out the CIS tax, we take the total invoice amount (not including VAT):
Then, remove the cost of materials:
- £1200 – £200 = £1000
Finally, apply the CIS rate for registered subcontrctors (20%), and subtract it:
- £1000 x 20% = £200
- £1000 – £200 = £800
In this case, you’d pay the subcontractor £800 and send £200 to HMRC.
If you’re a subcontractor doing construction work
You’ll have to register for CIS tax through the HMRC website.
If you need more information about how the Construction Industry Scheme works, check out our article.
Build a tech stack
A tech stack is the name for a collection of software businesses use to help with their day-to-day running.
Everybody’s needs are different, but there are a few apps and software solutions that are helpful to almost everybody, like CRM and accounting software.
CRM (Customer Relationship Management) software
CRM software is probably the best place to start for small businesses.
It acts as a kind of common ground between you and your customers. It’s a shared platform on which you can communicate, share work, and collaborate with one another, instead of sporadically emailing each other with clunky attachments.
Using a good CRM will also give your small business a professional feeling, inspiring confidence in your customers when they see your fancy new work platform.
Accounting software is a great idea for businesses of all sizes. It will help you record income and expenses, give you insight into long term projections, and can generate invoices for your clients.
It’s particularly useful when tax season comes around. You or your accountant will have easy access to all the information you need.
Some business current accounts, like Countingup, come with accounting software built in. So if you’re going to set up a business account anyway, might as well get one that’ll help manage your finances.
These are just two of many kinds of software you can use. If you’d like more information about tech stacks, check out our article.
Keep track of your finances with Countingup
The Countingup business current account makes it easy to manage all your financial data in one simple app. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes.
You’ll receive real-time insights into your cash flow, profit and loss reports, tax estimates, and the ability to create invoices in seconds.
All your transactions will be automatically categorised when they’re recorded. And you can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward.
Find out more here.