Written by Accounting Matters – specialists in construction sector accounting and tax.
Introduction
If you work in construction, you already know that no two projects are the same. Budgets shift, materials fluctuate, subcontractors come and go, and payments never seem to arrive when you expect them. So it should come as no surprise that your accounting needs are also very different from other industries.
That’s where construction accounting comes in — a specialist approach designed to manage project-based finances, irregular cash flow, and complex compliance requirements like CIS and the VAT Reverse Charge.
At Accounting Matters, we work with builders, developers, and contractors every day. We help you keep your books accurate, your projects profitable, and your HMRC obligations met. This guide answers four key questions every construction business should understand:
- What is construction accounting?
- How does it differ from standard accounting?
- What should you look for in construction accounting software?
- What accounting methods do construction companies use?
Let’s break it down.
What Is Construction Accounting?
Construction accounting is a specialist branch of accounting tailored to the building and construction industry. Unlike traditional accounting, which focuses on general business income and expenses, construction accounting tracks the financial performance of individual projects — often running for months or even years.
Each project is treated almost like a mini business. You need to record:
- Labour costs (both employees and subcontractors)
- Materials, plant hire, and site overheads
- Stage payments and retentions
- CIS deductions and reverse-charge VAT
- Profit margins per job
- Timing differences between work completed and payment received
Construction accounting is about linking finances directly to jobs rather than to departments or calendar periods. It allows you to see exactly which projects are profitable and which are not — and that’s vital for staying afloat in an industry with tight margins.
At Accounting Matters, we design construction-specific reporting systems that show directors the full picture: not just total turnover, but real-time profitability per site, per contract, and per team.
What Is the Difference Between Construction Accounting and Standard Accounting?
The difference can be summed up in one word: complexity.
A typical retail or service business deals with straightforward transactions — sell a product, record the sale, deduct costs, pay VAT and tax. Construction doesn’t work that way. It has unique challenges that standard accounting systems aren’t built for:
Area |
Standard Accounting |
Construction Accounting |
Revenue recognition |
Based on completed sales |
Based on project stages or percentage of completion |
Cost tracking |
General overhead categories |
Job-by-job cost codes (materials, labour, plant, etc.) |
Cash flow |
Predictable inflow/outflow |
Highly variable – delayed client payments, retentions, CIS deductions |
Tax compliance |
Standard VAT |
Reverse Charge VAT and CIS reporting |
Payroll |
Employees only |
Mix of PAYE staff and CIS subcontractors |
Project profitability |
Not usually tracked |
Essential for survival and tender pricing |
Software setup |
Generic chart of accounts |
Custom project/job codes and CIS integration |
Because of these complexities, construction businesses need accountants who truly understand the sector. At Accounting Matters, we translate this complexity into clarity. Our clients see clean reports, timely returns, and accurate profit forecasts — without the jargon.
What Should I Look for in Construction Accounting Software?
The right software makes the difference between chaos and control. Construction accounting involves hundreds of moving parts — invoices, subcontractors, purchase orders, site expenses, and staged payments. Good software ties them all together in real time.
Here’s what to look for:
1. Cloud-based access
You need to update your accounts from anywhere — whether you’re in the office, on-site, or at home. Cloud systems like Xero give instant access to live data for directors, bookkeepers, and accountants.
2. Job costing and project tracking
Your software should allow you to tag every cost and invoice to a specific project. This makes it easy to see how much each job is making (or losing).
3. CIS and payroll integration
CIS compliance is non-negotiable. Choose software that integrates CIS verification, deductions, and statements automatically — ideally alongside your payroll system. BrightPay works perfectly for this.
4. Reverse Charge VAT handling
Not all systems manage reverse charge VAT properly. Check that your software applies the correct VAT codes and produces compliant invoices.
5. Receipt and document capture
Paperwork gets lost on site. Apps like Dext or Hubdoc let you snap a photo of receipts and upload them directly into your accounts — no more missing expenses.
6. Reporting and forecasting
Look for clear dashboards showing cash flow, project profitability, and tax forecasts. Real-time visibility allows better decision-making.
At Accounting Matters, we set construction clients up with the perfect tech stack:
➡️ Xero for bookkeeping
➡️ Dext/Hubdoc for receipts and invoices
➡️ BrightPay for payroll and CIS
➡️ SmartVault for secure document storage
We provide setup, training, and ongoing support so the systems work as hard as you do.
What Accounting Methods Do Construction Companies Use?
Construction accounting uses a few different methods to recognise income and expenses.
Choosing the right one depends on the size of your business, the type of contracts you take on, and your reporting goals.
Let’s look at the most common approaches:
1. Cash Basis Accounting
You record income and expenses only when cash actually moves — when clients pay you or you pay suppliers.
- ✅ Simple for small contractors.
- ❌ Doesn’t reflect long projects accurately.
- ❌ Can distort profit if large invoices remain unpaid.
2. Accrual Accounting
You record income and expenses when they’re earned or incurred, not when money changes hands.
- ✅ More accurate for multi-month projects.
- ✅ Gives clearer tax and profit picture.
- ❌ Requires more detailed record-keeping and management.
3. Percentage-of-Completion Method
For longer contracts, you recognise income and expenses based on the proportion of work completed.
Example:
If a £200,000 project is 50% complete, you recognise £100,000 of revenue and related costs.
- ✅ Matches profit to actual progress.
- ✅ Required under accounting standards for larger firms.
- ❌ Needs reliable progress estimates and job costing data.
4. Completed-Contract Method
You record all revenue and profit only when the project finishes.
- ✅ Simpler for short-term jobs.
- ❌ Risk of big swings in profit and tax timing.
5. Retention & Stage Payment Adjustments
Construction often uses staged invoicing and retentions. Proper accounting means recording income as it’s earned, even if part of the payment is held back. Your accountant should track retentions separately so they aren’t forgotten or overstated.
At Accounting Matters, we help clients choose the right method for their projects and tax position. For many contractors, a hybrid approach works best — combining accrual accounting with project-based reporting and CIS reconciliation.
Why Construction Businesses Need a Specialist Accountant
Understanding these methods is one thing; applying them correctly under HMRC and Companies House rules is another. Errors in revenue recognition, CIS, or VAT can lead to serious compliance issues.
A specialist accountant ensures:
- CIS and VAT Reverse Charge are applied correctly.
- Stage payments and retentions are recorded properly.
- Project profitability and cash flow are visible in real time.
- Payroll integrates seamlessly with your job costing.
- Tax bills are forecasted in advance — not guessed at the last minute.
At Accounting Matters, we’re proud to be construction specialists. We don’t just look at your accounts once a year — we work alongside you, month after month, helping you grow profitably and confidently.
How Accounting Matters Supports Construction Clients
We offer a fully managed service built specifically for builders, contractors, and developers:
- Bookkeeping & CIS management: Real-time processing with full compliance.
- Payroll & subcontractor payments: Integrated through BrightPay and HMRC verified.
- VAT & Reverse Charge management: Correct codes, accurate filings, no surprises.
- Month-9 tax reviews: Forecasting liabilities before year-end.
- Cash flow & project profitability reports: So you always know where you stand.
- Cloud system setup & training: Xero, Dext, Hubdoc, and SmartVault fully configured.
You build the projects — we build the financial structure that supports them.
Key Takeaways
- Construction accounting is built around projects, not just profit and loss.
- It handles CIS, retentions, staged payments, and reverse charge VAT — things general accounting doesn’t.
- The right software is cloud-based, CIS-enabled, and designed for job costing.
- Accounting methods like percentage-of-completion or accrual accounting give a clearer financial picture than simple cash accounting.
- A specialist accountant ensures accuracy, compliance, and profitability.
Conclusion
The construction industry is fast-paced, high-pressure, and constantly changing — but your accounting doesn’t have to be. With the right systems and specialist support, you can manage cash flow confidently, stay HMRC-compliant, and make informed decisions that grow your business.
At Accounting Matters, we’re proud to be more than just accountants. We’re your partners in building a financially secure future. From CIS to payroll, VAT to cash flow forecasting, we understand the challenges you face — and we’re here to make them simpler.
Ready to build stronger financial foundations for your construction business?
📩 welcome@accountingmatters.co.uk
📞 01773 747990