OVERVIEW
Overview
In construction, projects span fiscal years and every site has a different cost structure, which makes matching the timing of profit and loss difficult. On top of that, maintaining construction registration requires meeting capital and financial-ratio thresholds at every closing, and a single flawed record for on-site daily labour can trigger assessments of both withholding tax and VAT. Establishing site-level controls from the outset is the surest form of tax saving.
VALUE Tax & Accounting first designs a site-level cost structure, distinguishing between general and specialty construction and between public and private contracts. We align progress billing and tax invoice timing with the terms of each contract, and we simulate substantive capital and financial ratios before closing so that licence maintenance is never at risk. For day-laborer labour costs, we also put reporting in order so that attendance records and cash flows line up with each other.
KEY ISSUES
Key tax issues in construction
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01
Revenue recognition based on percentage of completion
At every filing you must reconcile the difference between accounting profit based on percentage of completion and the timing of recognition for tax purposes. If the client's progress-confirmation schedule and your book entries diverge, an entire tax period can shift, so the recognition date should be fixed against the progress terms written into the contract.
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02
On-site labour documentation
For day-laborer labour costs, a single mismatch among qualified supporting documentation, withholding tax and the four major social insurance programs leads straight to an assessment. If you keep income income payment statements but leave no actual cash trail, the expense is treated as fabricated payroll and disallowed, so attendance logs and bank transfer records must be managed together.
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03
Maintaining construction registration
A licence is maintained only if the capital, technician and substantive capital requirements are met at every closing. Real net worth is judged on the finalised financial statements, so it is hard to undo once the books are closed, and any advances receivable or irrecoverable receivables accumulated during the year become direct deductions.
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04
Subcontract and material costs
The timing of tax invoice receipt, the input VAT credit and the flow of subcontract payments must be managed together. Amounts paid without qualified supporting documentation lose the credit and attract a penalty tax for failure to maintain supporting documentation, so a check on whether evidence has been received belongs in the payment process itself.
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05
Cost allocation by site
Long-term projects that span fiscal years require a precise split between work-in-progress and completed-work accounts and between the costs of each site. Allocating common costs arbitrarily distorts site-level results, causes progress billings and taxable income to diverge, and leaves you without a defensible basis when substantiation is later requested.
HOW WE HELP
How VALUE Tax & Accounting responds
Designing site-level cost control
We collect revenue and cost separately by site, building the structure from the outset so progress billings and taxable income never diverge.
Labour cost documentation and filing
We manage day-laborer income income payment statements, withholding tax and the four major social insurance programs around the site schedule, preventing later assessments.
Advance check of registration financial ratios
We simulate the substantive capital and capital requirements before closing, removing the risk to your licence in advance.
FAQ
Construction tax FAQ
Q At what point is the substantive capital required to maintain a construction licence assessed? expand_more
It is judged on the financial statements at each closing. Because it is hard to undo once the books are closed, it is safer to keep advances receivable and bad debts from accumulating during the year and to run a simulation before closing.
Q What documentation is required for on-site day-laborer costs? expand_more
Income income payment statements for daily labor income must be filed monthly, and the attendance log must agree with the actual bank transfer records. If the statements exist but no cash moved, the expense is treated as fabricated payroll, disallowed, and withholding tax may be assessed on top.
Q When must a tax invoice be issued for a progress payment received? expand_more
For long-term contract work, the time of supply is the date progress is confirmed under the contract, not the date payment is actually received. If the client's inspection schedule and your issuance date diverge, a late-issuance penalty applies, so check the progress-confirmation terms in the contract first.
Q A subcontract payment has been made without receipt of a tax invoice. expand_more
Amounts paid without qualified supporting documentation cannot be credited as input VAT and attract a penalty tax for failure to maintain supporting documentation. If the counterparty refuses to issue an invoice, you can use the purchaser-issued tax invoice procedure, so act quickly from the time of payment.
Q Are construction firms eligible for the Special Tax Reduction for Small and Medium Enterprises? expand_more
Construction is among the industries eligible for the reduction. The rate varies with the location of the business and the size of the company, however, and there are cases where it cannot be combined with other credits, so calculate which combination is more favourable before choosing.
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