Construction and trade glossary

Applications for payment

How money is asked for on a construction contract, rather than by invoice. You apply for the value of work done, the contractor certifies a figure, and you are paid on the certificate. The gap between what you applied for and what was certified is a disagreement, and left three months it becomes a fact.

Balancing charge

The taxable amount when you sell something you have already claimed the full cost of. It is capped at what you claimed, and it is not a penalty. It is the other half of having had the deduction up front.

CIS

The Construction Industry Scheme. A withholding tax on construction labour: contractors deduct 20 per cent from registered subcontractors, 30 per cent from ones they cannot verify, and nothing from those with gross payment status. It is not an extra tax, it is the same tax collected earlier.

CIS suffered

The deductions taken off you. It is tax paid on account and belongs on the balance sheet as a debtor, not in the profit and loss as an expense. Booked as a cost it understates your profit and you then claim the same money again as a credit.

CITB levy

The Construction Industry Training Board levy. Where a contractor deducts it from a payment, it is excluded from the gross amount of payment shown on the monthly return, so it reduces the figure CIS is calculated on. HMRC's own example is a £1,000 contract with a £7 levy, reported as £993.

Contractor

Anyone who pays subcontractors for construction work. It is a role rather than a size of business, and plenty of firms are contractor and subcontractor at the same time, deducting from the people below them and being deducted from above.

Defects liability period

The window after practical completion during which you have to come back and put things right. It is also when the second half of the retention is released, which is why it is worth diarising rather than remembering.

Domestic reverse charge

The VAT rule that has applied to most construction services between VAT-registered businesses since 1 March 2021. You do not charge VAT. The customer accounts for it. Six conditions all have to hold, and the one that decides most jobs is whether the customer has told you in writing that they are an end user.

Double cab pickup

A vehicle that was treated as a van for tax and mostly is not any more. From 6 April 2025 most are treated as cars for the benefit charge, because they are equally suited to carrying people and goods. Bought, leased or ordered before that date, van treatment runs to the earlier of lease expiry or 5 April 2029.

End user

A business registered for VAT and CIS that is not making an onward supply of the construction services it receives. The developer keeping the building. If it tells you in writing that it is one, the reverse charge does not apply and you charge VAT normally.

Gross payment status

Being paid without any CIS deduction. Three tests: business, turnover and compliance. It is a cash flow gain rather than a tax saving, because the same tax is due either way, just later.

Higher rate

The 30 per cent deduction that applies where a contractor cannot verify a subcontractor, including the ones who said they were registered and were not. It applies from the first payment and cannot be re-rated afterwards.

Intermediary supplier

A business connected to an end user that buys construction services and resupplies them without material change. Connected means an interest in the same land or membership of the same corporate group. Treated as an end user for the reverse charge.

Labour element

The part of a payment that CIS is actually calculated on. Materials, VAT, plant hired in, consumable stores, fuel other than for travelling, prefabrication the subcontractor paid for, and any CITB levy deducted all come off first.

Materials markup

What you add to the cost of materials. It is not the same as a margin, and the difference always favours the customer. Add ten per cent and you keep 9.1 per cent, because the markup is measured on the cost and the margin on the price.

Net construction turnover

The figure the gross payment status turnover test is measured on. HMRC defines it as gross income from construction work excluding VAT and the cost of materials, so it is a labour test wearing the word turnover. A trader invoicing £48,000 with £20,000 of materials has £28,000 and fails a £30,000 threshold.

Nil return

A monthly CIS return filed for a month in which you paid no subcontractors. It is still due. This is the most common CIS penalty there is: the work stopped and the returns did not.

Payment and deduction statement

The written statement a contractor must give a subcontractor within 14 days of the end of the tax month, showing what was paid, what was treated as materials, and what was deducted. It is the subcontractor's evidence for claiming the credit.

Practical completion

The point at which the work is finished enough to be used, even if snagging remains. It usually releases the first half of the retention and starts the defects liability period running.

Retention

A percentage of each payment held back, usually three to five per cent, released half at practical completion and half at the end of the defects period. It costs you twice: the finance cost of waiting and the share that never arrives at all.

Reverse charge wording

What has to appear on the invoice. HMRC accepts: VAT Act 1994 Section 55A applies. Or: Customer to pay the VAT to HMRC. Show the VAT rate or amount the customer must account for, and do not add it to the total they pay you.

Snagging

The small defects put right after the main work is done. Cheap in materials and expensive in time, because a return visit costs the chargeable day it breaks rather than the hour it takes. Worth pricing rather than absorbing.

Subcontractor

Anyone paid for construction work by a contractor. Registering with HMRC is what gets you 20 per cent instead of 30, and it is free.

Tax month

The CIS month, which runs to the 5th rather than to the end of the calendar month. Payments made on the 6th belong in the next return, which is why working to calendar months puts a handful of payments in the wrong month every year.

Temporary workplace

A site you have not spent, and do not expect to spend, more than 24 months at, or where you spend under 40 per cent of your working time. Travel to one is allowable. It turns on expectation rather than hindsight, so a site you expected to run three years is permanent from day one.

The 5 per cent disregard

Where the reverse charge element is 5 per cent or less of the whole supply it can be ignored and normal VAT rules apply. Both sides have to agree that from the start of the contract, not when the first invoice is queried.

Variation

Work added to a job after it was quoted. The most reliably lost money in the trade, because it gets done before it gets priced and by invoice day nobody remembers what was agreed. One message before the work starts is enough to bill it.

VAT registration threshold

£90,000 of taxable turnover in any rolling twelve months, at which registration becomes compulsory. It is measured on turnover rather than profit, and rolling rather than by tax year, so a busy summer can cross it without a year end going anywhere near it.

Verification

Checking a subcontractor with HMRC before you pay them, which returns the rate and a verification number. You can reuse the number if you have paid them in the current or previous two tax years. Doing it after the first payment is too late.

Work in progress

Jobs started and not finished at your year end. The costs are in this year and the income may not be, so work done and not yet invoiced is an asset. Leave it out and you understate both the profit and the value of the business.