Improving cashflow for the construction sector – corporation and income tax

As the COVID-19 pandemic continues, the inability to work on site is having a massive cashflow implication for all businesses in the construction sector.

While many staff and sub-contractors are in self-isolation and mounting invoices start to become overdue, it may be prudent to revise your tax position as a means to reduce your current outgoings.

Tax Payments

The Government’s decision to defer the income tax payments due on 31 July 2020 (payments on account) until 31 January 2021 will be a welcomed respite, with HMRC confirming they will not automatically charge penalties or interest during the deferment period. Completing your 19/20 tax return as soon as possible will allow you to plan for a potential large payment in January 2021.

For businesses facing difficulty making their Corporation tax payments, you can request a Time To Pay (TTP) arrangement with HMRC. In response to COVID-19, Chancellor, Rishi Sunak, confirmed that HMRC will scale up the Time To Pay service to allow businesses and self-employed to defer tax payments and being proactive will allow you to spread your business tax payments over a longer period of time without fear of added penalty charges.

Quarterly corporation tax payments are based on calculations of tax payable on annual budgets that may have been prepared before COVID-19. Companies can reduce their payments based upon updated expectations of profitability, or any overpayment repaid before tax returns are filed.

Other Options

Construction companies and unincorporated businesses can consider changing their accounting year end as this could utilise losses being made during the pandemic period much quicker.

For any business that has done any significant building works in the last two financial years (and in some cases earlier), a detailed review of the capital allowances claimed could result in additional tax repayments due.

With most company cars sitting idle during lockdown, you could consider whether handing back the car keys is possible to potentially reduce the annual company car tax liability for both the individual and the company, if the car is unavailable to the employee for at least 30 consecutive days.

If you would like to discuss opportunities to increase cash inflow to your construction business, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.

Alternatively, if you have any other questions regarding any tax related issues, please email our EQ Taxperts.