Construction finance, in plain English
Forty terms your accountant should know and most don't. If a word on your certificate, your CIS statement or your contract isn't here, ask us and we'll add it.
- 13-week forecast
- A weekly cash forecast built from contract payment dates, updated monthly. The right horizon for construction.
- Adjudication
- A fast-track dispute resolution process available on construction contracts, typically 28 days.
- Annual investment allowance
- 100% relief on the first £1m of qualifying plant, including second-hand.
- Application for payment
- A request to the client for payment of work done to date. Not a sale until certified.
- CIS
- The Construction Industry Scheme. Contractors deduct tax from payments to subcontractors and pay it to HMRC.
- CIS deducted
- Tax you withhold from your subcontractors and pay to HMRC by the 22nd.
- CIS suffered
- Tax deducted from you as a subcontractor. Reclaimable monthly against PAYE if you're a company.
- Capital allowances
- Tax relief on plant, machinery and commercial vehicles. Full expensing gives 100% in year one for companies on new kit.
- Cash runway
- Weeks until forecast cash hits zero at current burn.
- Certification / payment notice
- The client's (or their QS's) confirmation of the value of work they accept, which starts the payment clock.
- Certified basis
- Recognising revenue on certified value rather than on applications. The only basis on which construction margin means anything.
- Concentration risk
- Too much revenue from one customer. Above 25% from any one is a watch point.
- Defects period
- The period (typically 6–12 months) after completion during which the contractor must fix defects, and the second half of the retention is held.
- Domestic reverse charge (DRC)
- VAT rule for construction services between VAT and CIS registered businesses: the customer accounts for VAT, not the supplier.
- EPS
- Employer Payment Summary. The monthly submission on which a company reports CIS suffered to offset against PAYE.
- Employment status
- Whether HMRC would treat a worker as employed or self-employed for tax, regardless of what they're called or how they're paid.
- End user
- A customer who receives construction services but doesn't make onward supplies of them (a homeowner, a landlord occupying). They must be charged VAT, but must confirm status in writing.
- Final account
- The agreed final value of a contract including all variations, settled after completion.
- First moiety
- The first half of a retention, released at practical completion.
- Fully loaded labour cost
- Gross pay plus employer's NI, pension, holiday, sick and allowances, divided by productive hours.
- Gross payment status
- CIS status allowing you to be paid without deductions. Requires passing turnover, business and compliance tests annually.
- Hire purchase
- Finance where you own the asset at the end. Capital allowances are available on the full price when brought into use.
- Intermediary supplier
- A VAT-registered business connected to an end user that buys construction services to pass on. Treated like an end user for DRC.
- Job costing
- Coding every cost to a job at source, so margin is visible monthly.
- Labour-only subcontractor
- A subcontractor who provides labour without materials. The highest employment-status risk group.
- Management pack / working document
- The monthly document: what happened, so what, now what. Ours is called the Taxtful View.
- Overhead recovery
- The share of fixed overhead each job must carry, built into every tender before profit.
- Pay less notice
- The client's formal notice that they intend to pay less than the applied amount, with reasons, by a deadline set in the contract.
- Payment schedule
- The contractual timetable of applications, valuations and payments, from which the cash forecast is built.
- Practical completion (PC)
- The point at which the works are complete enough for the client to take them over. Triggers the first retention release.
- Preliminaries (prelims)
- Site-level costs not tied to a specific work item: site set-up, welfare, supervision, plant on hire.
- R&D tax relief
- Corporation tax relief for projects that resolve technical uncertainty. More construction work qualifies than people assume: temporary works, groundworks methods, new techniques.
- Retention
- A percentage (usually 3–5%) withheld from each payment, released in two halves: at practical completion and after the defects period.
- Retention bond
- A surety in place of cash retention, so the money stays with you.
- Stage payment
- A payment triggered by reaching a defined stage of the works rather than a monthly valuation.
- Umbrella company
- An employer that engages workers on PAYE and supplies them to contractors, used to remove status risk.
- Valuation
- The periodic assessment of work done, usually monthly, on which certification is based.
- Variation
- An instructed change to the scope of work. If it isn't claimed, it isn't paid.
- Verification
- Checking a subcontractor's CIS status with HMRC before first payment to know what rate to deduct.
- Work in progress (WIP)
- Cost incurred on work not yet applied for. Ignored until year-end by most bookkeeping; adjusted monthly by ours.
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