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May 23, 2022
May 23, 2022
Side hustle

A Construction Worker Guide to Tax

Rachel
Rachel
We look at the different categories of construction employment, the ways you can be paid, and what it means for your taxes. 

A lot of people work and earn in construction. According to Statista, 2.2 million people contributed £122 billion to the UK economy through construction work in 2021, consistently keeping construction as one of the biggest industries in the UK. 

Among these 2.2 million people list a whole range of roles from scaffolders to engineers to decorators, each earning a range of incomes in a number of ways. You could be a contractor running a demolition business, and within that business there might be 40 subcontractors each with slightly different roles and each being paid through different schemes. Cash-in-hand jobs make up a large number of roles, but you may have full time employees being paid through PAYE or subcontractors being paid through the Construction Industry Scheme (CIS). 

It can seem a minefield, but once you understand the category you fall into, it should be easy enough to navigate. Here we look at what the different categories are, how you get paid, and how you pay tax. 

What is construction work?

According to the Government’s Standard Industrial Classification (SIC) of economic activities, construction work falls into three broad categories:

So if your work aligns with one of these three areas then you can likely consider yourself as working in construction. Within these areas you may have a number of different roles, including painting, administration, or cleaning, but if the broader company industry fits into these SIC categories, you can consider yourself as working in the construction sector. 

The nature of construction work is that it mainly runs on a contractor basis. A contractor is any individual or organisation hired by a client (the one who pays for the work to be done). The contractor then employs construction workers as their business carries out construction work. Contractors can include:

The workers employed by the contractor can either be in-house employees or subcontractors. Often subcontractors are brought in for specialist jobs, for example the plumbing for a new building or even the on site catering for the rest of the workforce. Let’s look at how each of these roles are paid. 

How do I get paid for construction work?

With so many organisations and people involved in any one construction project there can be a whole range of payments distributing the client’s money throughout the workforce. Here’s a simple breakdown of payments for the three main forms of employment involved:

Contractors 

Employees 

Subcontractors

How do I pay tax for construction work?

Inevitably all of these roles will be required to pay tax and because of their different natures they’ll need to be paid in different ways. 

Contractors

As a contractor you’ll need to complete a self-assessment tax return. This will be either because you’re a sole trader, or a limited company. You can read more about completing your self-assessment in our blog post here

If you’re a sole trader and invoicing the client then they won’t be paying your income tax for you. In this case you want to remove about 25%-35% of each payment you receive, and set it aside for your self-assement. 

If you’re a limited company the corporation tax is 19%. The individuals within that company then take separate incomes and pay income tax on that. 

Employees 

The benefit of being an employee is that you don’t have to worry about taxes, this will automatically be deducted along with national insurance as part of your paycheque. The same tax bands apply as it does to sole traders. You can read more about tax bands in our blog post here. But they’re essentially: 

Subcontractors 

If you’re a subcontractor you’ll need to know about the Construction Industry Scheme (CIS). This is where the contractor who has brought you in will take the amount to be paid in tax out of your wage before you receive it and pass this onto HMRC. 

All contractors need to register for it before employing subcontractors, and subcontractors should also register to avoid being taxed on the higher tax bands.  

This is one of those rare occasions where you may need to provide your unique Taxpayer Reference (UTR) number too, which you can read more about here.

Tax deductions when being paid from contractor to subcontractor are:

If you’re registered you’ll need to complete the self-assessment showing your invoices as proof of income and complete the CIS deductions field to show how much the contractor has deducted for paying income tax and national insurance. 

What can you claim on tax as a construction contractor?

As with any self-employed work you’ll have various running costs depending on what you do. You can deduct these costs from your taxable profit as long as they’re eligible expenses. 

So if you earn £50,000 and you claim £9,000 in expenses, you’d only be taxed on £41,000 for the year. 

Note that if you use the £1,000 tax free trading allowance you won’t be able to claim expenses. 

You can read more on what the Government considers expenses in our blog post here.

Things you might be able to expense include:

How can Earnr Help?

Earnr makes self-employed bookkeeping easy, so that you can spend less time worrying about this kind of stuff and more time growing your business. 

You can separate your business transactions from your personal ones, track your expenses and get a real-time tax estimate so you know whether or not you need to submit a tax return. It’s perfect for contractors and subcontractors alike:

Check out the app

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