Running a construction business isn’t just about building — it’s also about navigating the complex world of taxes. From sales tax to payroll deductions, the financial side can quickly become overwhelming.

The construction sector comes with its own tax landscape, filled with specific regulations like CIS, VAT, and Corporation Tax. Missing a deadline or misunderstanding a rule can result in costly penalties or cash flow problems.

No matter if you’re working solo on-site, managing a crew of subcontractors, or growing your company with multiple employees and tax responsibilities, it’s vital to stay informed about your tax commitments. That’s why we’ve put together this comprehensive Construction Tax Guide for 2025/26 — to help you manage the numbers so you can concentrate on building your business.

Taxes Every Construction Business Should Know About in the UK

Construction business comes with more than just building challenges — the tax side can be a whole project in itself. Here’s a simplified breakdown of what might affect you: 

• Profits and Corporation Tax
  If your company is officially registered as a limited company, you’ll pay tax on profits after expenses. This is what’s called Corporation Tax.
• Income Tax for Individuals
  For sole traders or partners, instead of Corporation Tax, you’ll pay Income Tax based on the money you personally take from the business.
• Subcontractor Payments & CIS
  If you hire subcontractors, the Construction Industry Scheme kicks in, meaning you must deduct tax from their payments and report these deductions to HMRC.
• VAT Registration and Rates
  Once your turnover hits a certain point, you need to register for VAT. The tricky part? Not all construction work is taxed the same, so you’ll need to know which rates apply to your jobs.
• Employing Staff? Payroll Taxes Apply
  Hiring employees means running PAYE, handling National Insurance contributions, and submitting payroll information to HMRC regularly.
• Property Purchases & Stamp Duty
  Buying land or property? Stamp Duty Land Tax applies here, with the amount you pay based on the property’s value.
• Living on Site? Council Tax Could Apply
  If you’re living or working from a property during construction, you might have to pay Council Tax, even if the build isn’t finished.
• Selling Assets? Watch Out for Capital Gains Tax
  Selling a property or land at a profit? Capital Gains Tax might be due. Knowing your entitlements and relief options helps avoid unexpected costs.

Key Tax Deadlines for Construction Businesses in 2025/26

Keeping up with tax deadlines isn’t optional — missing them can mean fines, extra interest, or even scrutiny from HMRC. To help you stay ahead, here are the essential dates you need to know for the 2025/26 tax year:

• Tax Year Period: Runs from 6 April 2025 to 5 April 2026.
• Self-Assessment Deadline: File your 2024/25 tax return online by 31 January 2026 — and pay any tax owed by the same day.
• Payments on Account: If you’re self-employed, your second payment on account for 2024/25 is due by 31 July 2025. The final balancing payment (if any) must be paid by 31 January 2026.
• CIS Monthly Returns: Submit your Construction Industry Scheme returns by the 19th of the month after the tax month ends. If you pay HMRC electronically, deductions must be paid by the 22nd.
• PAYE Deadlines: Full Payment Submissions should be sent on or before each payroll date, with payments to HMRC due by the 22nd of the same month.
• Corporation Tax Payment: Usually due nine months and one day after your accounting period ends.
• VAT Returns: Generally due one month and seven days after the end of your VAT period.

Mark these in your calendar now to avoid last-minute headaches!

Corporation Tax Essentials for Construction Firms in 2025/26

If your construction business operates as a limited company, you’ll be paying Corporation Tax on your profits — that means your income after deducting allowable expenses.

For the 2025/26 tax year, the Corporation Tax rate depends on your profit level:

• 19% on profits up to £50,000
• 25% on profits over £250,000
• For profits between these thresholds, a tapering relief called marginal relief applies, effectively smoothing the rate between 19% and 25%.
  

Remember, it’s not just trading profits that count. Any gains from selling assets like property, vehicles, or equipment at a profit are also taxable.

Certain reliefs might reduce your bill — for example, Business Asset Disposal Relief (previously Entrepreneurs’ Relief) can help if you’re winding down or selling your business. Since these reliefs can be complex, it’s wise to seek professional advice to see what you qualify for.

Accurate bookkeeping is crucial. Keeping detailed records ensures your tax is calculated correctly and helps you avoid penalties for mistakes or missed payments.

Submitting Your Company Accounts: What You Need to Know

If you run a limited company, filing accounts with Companies House and submitting a Company Tax Return to HMRC isn’t just a formality — it’s the foundation for calculating your tax obligations.

Here’s what your accounts usually cover:

• Balance Sheet: This sheet shows your company’s financial health at year-end, detailing what you own, what you owe, and what’s left in the business.
• Profit and Loss Account: This breaks down your income and expenses throughout the year, revealing your net profit, which is key to figuring out your Corporation Tax.
• Directors’ Report: A short summary of how your company has performed and what it’s been up to, unless you qualify as a micro-entity.
  

Speaking of micro-entities, if your company has fewer than 10 employees, a turnover below £1 million, and assets under £500,000, you can benefit from simplified reporting. This means you might submit abridged accounts and skip the directors’ report altogether, saving time and effort.

One tricky area to watch is depreciation — the gradual decline in value of things like machinery, vehicles, and tools. While it appears in your accounts, it’s not directly deductible for tax. Instead, capital allowances are used to claim tax relief on those assets.

Super Deduction & Capital Allowances Summary

The Super Deduction ended in March 2023, but capital allowances remain valuable for reducing your tax bill in 2025/26.

• Annual Investment Allowance (AIA): Deduct up to £1 million on qualifying plant, machinery, and business vehicles in the year of purchase.
• First-Year Allowances: Extra reliefs for assets like electric vehicles and energy-efficient equipment.
• Full Expensing: Applies to new, unused assets bought after 1 April 2023 (limited to companies).
• Writing Down Allowances: For assets not covered by AIA or if the limit is exceeded, claim a percentage of the asset’s value each year.
• Asset Rental: Special rules apply if you rent out equipment or plant; tax treatment depends on usage.
  

Because the rules are complex, consulting your accountant is key to making tax-efficient purchase decisions and optimising your Corporation Tax.

Tax Essentials for Sole Traders & Partnerships in Construction

If you’re self-employed or running a partnership in construction, your tax rules differ from those of limited companies. You don’t pay Corporation Tax or file accounts with Companies House, but you must report your income and pay tax on profits via Self Assessment.

Income Tax & National Insurance (NI)

Your business profits count as your personal income. For 2025/26, income tax bands are:

• £0–£12,570: tax-free personal allowance
• £12,571–£50,270: 20% basic rate
• £50,271–£125,140: 40% higher rate
• £125,141+: 45% additional rate
  

You’ll also pay National Insurance Contributions:

• Class 2 NICs: a flat weekly rate (around £3.45) if profits exceed £6,725
• Class 4 NICs: 6% on profits between £12,570–£50,270 and 2% above that
  

These NI payments build your entitlement to state benefits but reduce take-home pay as profits grow.

Filing Tax Returns

Keep detailed records of all income and allowable expenses, like tools, subcontractor fees, van costs, travel, and office expenses. Your taxable profit equals income minus expenses. Submit your tax return by 31 January after the tax year ends (6 April). If you owe over £1,000, you may need to make advance payments towards next year’s tax.

Making Tax Digital (MTD)

From April 2026, sole traders earning over £50,000 must keep digital records and submit quarterly updates. Thresholds will lower in the following years. Partnerships and limited companies are not affected yet.

Construction Industry Scheme (CIS)

CIS regulates tax deductions in construction supply chains. Contractors paying subcontractors must register with HMRC, verify subcontractor status, and deduct tax:

• 20% for registered subcontractors
• 30% if unregistered
• 0% if subcontractors have Gross Payment Status (no deductions)
  

Deductions apply only to labour costs, not materials or VAT. Contractors must submit monthly CIS returns and provide payment statements to subcontractors.

VAT in Construction

You must register for VAT if turnover exceeds £90,000 (2025/26 threshold). You can voluntarily register if it benefits your business. VAT rates depend on the work type:

• Standard 20% for most repairs and maintenance
• Reduced by 5% for energy-saving installations and some conversions
• Zero-rated 0% for new residential buildings
  

VAT returns are quarterly and must be filed digitally under MTD rules. The Flat Rate Scheme may simplify VAT for small businesses by paying a fixed percentage (14.5% for most construction firms) on turnover.

Tax Deductions & Allowances

You can deduct many business expenses, including:

• Tools, machinery, and vehicles (via capital allowances or Annual Investment Allowance)
• Safety gear like PPE and branded workwear
• Van running costs or mileage (but not both)
• Materials, premises rent, insurance, marketing, subcontractor fees, training, and trade subscriptions
  

Always keep clear records and separate business from personal use to avoid errors.

Capital Gains Tax (CGT)

CGT applies when selling business assets at a profit, such as property, machinery, or land. For 2025/26, rates are 18% or 24%, with a £3,000 annual exemption. Limited companies pay Corporation Tax instead of CGT on gains.

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, reduces Capital Gains Tax to 14% (rising to 18% from April 2026) on qualifying business disposals, up to a £1 million lifetime limit. It applies to sole traders, partners, and shareholders who’ve owned their business or shares for at least two years. The company must be trading when the asset is sold or within three years of ceasing. BADR can save construction business owners significant tax when selling or exiting, but it’s complex. Professional advice is recommended to maximise benefits and comply with current rules.

Stay Compliant & Prevent Penalties

In construction, keeping up with paperwork can be tough when you’re dealing with tight schedules, supply delays, and piles of invoices. However, even a tiny tax mistake can lead to fines or an expensive HMRC investigation. The key is knowing the common pitfalls construction businesses face—and then setting up the right processes to stay on top of everything before it becomes a problem.

Common Mistakes in Filing Construction Tax

Many construction tax issues arise from not understanding the rules or lacking a proper system, rather than intentional wrongdoing. 

1. Late filings/payments (CIS, PAYE, VAT) can quickly lead to penalties and interest.
2. Misclassifying workers (e.g., subcontractors vs. payroll employees) causes serious HMRC problems.
3. Correct employment status checks are essential, especially with frequent short-term contracts.
4. Inadequate record-keeping risks non-compliance, especially with Making Tax Digital now mandatory for VAT.
5. Construction businesses handle many receipts, expenses, and invoices, so a proper system is critical to avoid lost or incomplete paperwork.

How Cangaf Ltd. Can Help?

At Cangaf Ltd., we specialize in supporting construction businesses of all sizes—from sole traders and subcontractors to contractors and expanding limited companies. We provide expert tax advice, ensure compliance, and help you implement efficient processes so you can pay attention to your business growth without worrying about tax pitfalls.