Proper record-keeping is critical for construction industry businesses to comply with tax laws and regulations. As a subcontractor or contractor in construction, you must maintain detailed records of your finances and operations. This article will overview key record-keeping requirements and best practices for the construction industry.

Income and Expenses 

A core component of construction record keeping is documenting all income received and expenses incurred. You must record details on all contracts and client payments for each job for income. Be sure to note the client name, duration of the project, contract amounts, invoices, and payments received, including dates. Retain copies of all invoices and payment documentation.

For expenses, record and keep invoices or receipts for all purchases of materials, equipment, subcontractor services, and any other costs related to your projects. Maintain documentation on business travel, vehicle, and other operational expenses. A separate business vs. personal mileage log is advisable if using your vehicle. Proper categorization of expenses is also important for tax reporting.

Banking and Accounting Records 

Meticulous banking and accounting records are also imperative. Construction businesses should maintain separate business bank accounts rather than co-mingling funds. Retain bank and credit card statements, deposited checks, receipts, ledgers, and other documents that track money flow in detail. Segregate personal vs. business transactions.

Accounting books and systems should be established to track income, expenses, account balances, assets, and liabilities carefully. Maintain general ledgers, cash disbursement journals, balance sheets, profit/loss statements, and other accounting reports. Consult an accountant on setting up a record-keeping system suited to your business activities and needs.

Subcontractor Payments 

For contractors who hire subcontractors, you must comply with the Construction Industry Scheme (CIS) record-keeping rules—document payments made to subcontractors for services and the required CIS tax deductions. Provide subcontractors with Payment and Deduction Statements (PDS) detailing amounts paid and deducted for each payment.

Asset Records

Keep detailed documentation on assets utilized for your construction business. This includes equipment, vehicles, real estate, and other assets. Maintain invoices, lease agreements, titles, warranties, and records on the purchase, sale, depreciation, and personal use percentages of assets. This supports tax deductions and calculating gains/losses when assets are disposed of.

Employment Records 

Businesses with employees must store payroll records, including salaries/wages paid, withholdings, benefits, pension contributions, and taxes remitted. Timesheets, P-46, P-45 (new hire documentation), and personnel files should also be maintained. Proper employee record-keeping is required to comply with income tax and employment laws.

Retention Timelines : Construction companies must retain financial records for tax purposes for specified time periods. Records for returns related to Construction Industry Scheme deductions should be kept for three years after the tax year-end. Income, expense, accounting, and other general business records must be retained for five years from the tax return filing date. Asset records used to calculate capital gains/losses should be kept for four years after the disposal transaction. It is advisable to consult an accountant or tax advisor about record retention guidelines.

Digital Organization : Storing records digitally via scanning, online accounting systems, or other electronic methods can make organizing and accessing documents much easier. Ensure digital records include both sides of documents when relevant. Proper electronic record-keeping systems allow seamless retrieval of needed tax documents. However, retain original physical copies of especially important documents and contracts.

Protecting Records : Build a record-keeping system that protects your vital construction business documents from risks like fires, floods, or other disasters. Use cloud backup services, redundant hard drive storage, fireproof safes, or secure offsite locations to keep your essential tax records safe. Review protection systems regularly to ensure they are working properly.

Getting Help : Call our accountants, who are well-versed in construction industry record keeping and can provide invaluable advice and assistance in creating a compliant document management process tailored to your business. We can help craft record-keeping systems, implement accounting technology, ensure proper CIS compliance, and provide ongoing support. Investing in professional expertise can reduce compliance stress and audit risks.

Construction businesses must establish organized, consistent document management plans. Detailed records of all financial aspects and operations are required to comply with tax laws and support potential audits or tax examinations. Following these construction industry record-keeping best practices will help your company prosper.